ML20238F530

Banc One Corp,1986 Annual Rept

ML20238F530
Person / Time
Site:	Beaver Valley
Issue date:	12/31/1986
From:	Mccoy J BANC ONE CORP.
To:
Shared Package
ML20238F529	List: ML20238F528 ML20238F530 ML20238F543 ML20238F555 ML20238F585 ML20238F625 ML20238F651 ML20238F662 ML20238F711
References
NUDOCS 8709160210
Download: ML20238F530 (99)

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i I i a n. The special feature beginning on page six of this report is a fictional representation of the events involved in the affiliation of one of our Indiana banks. The technique of featuring an imaginary bank in a fictional setting previously appeared in our annual reports of 1970, 1978, and 1981. The stories featured Roger McGraw. CEO of North Falls National Bank. Many of our long time shareholders and followers of BANC ONE CORPORATION will be pleased that Roger is still associated with our holding :ompany. His saga continues as does our expansion. l i i i 4 w

BANC ONE CORPORATION and Subsidiaries About This Report This 1986 Annual Report presents the operating results for BANC OhE including the afdl-iations with American Fletcher Corporation and Spartan Bankcorp which occurredin January 1987. While not required from an accounting and regulatory standpoint, BANC ONEs management felt it would be extremely valuable for the 5,600 new shareholders who became BANC OhE shareholders in 1987 following the two afnliations as well as for the 31.300 existing shareholders to understarid BANC OhE as it is now constituted and as it will operate in the future. Since the two afAliations were poolings ofinterests, all1986 and prior periods' data are restated to include American Fletcher and Spartan Bankcorp. Financial Highlights m Annual Percent Change 1986/ Compounded $(millions, except per share amounts) 1986 1985 1985 5 years 10 years Per common share *' Net income $2.13 $1.93 10.4 % 14.5 % 13.2 % Cash dividends .82 .70 17.1 15.4 14.1 Stockholders' equity 13.74 12.28 11.9 10.9 9.8 For the year Total operating revenue 1.847.4 1,731.7 6.7 15.7 18.0 Net income 199.8 176.8 13.0 26.4 19.2 At year end Assets 17.371.9 16.474.5 5.4 17.6 13.7 Deposits 13.370.7 12.408.9 7.8 18.1 13.7 Loans and leases 11.549.1 10.061.7 14.8 22.5 17.0 Common equity $1.250.6 31.113.7 12.3 20.1 15.3 Shares outstanding (000) Common 90.988 90.592 Series A Preferred 988 996 Stockholders Common 36,855 24.748 Series A Preferred 3.560 3.583 Employees (full time equivalent) 12.654 12.359 Banking offices 459 452

• • ' Amounts reflect the 3-for.2 common stock split effective August 6.1985 and the 10*; common stock dividend effective February 7.1986

BANC ONE CORPORATION Report From Management The promise of interstate banking became a reality for BANC ONE in 1986. Including the affiliations with American Fletcher and Spartan Bankcorp which were completed in January 1987, BANC ONE affiliated with ten banking organizations in Indiana, Michigan, Ohio and Kentucky. These new affiliates, listed inside the back cover of this report, represent $6.3 billion of BANC ONE's $17.3 billion of assets at year end 1986. As a result, BANC ONE is the second largest banking organization operating in this four state area with the largest market presence of any bank in Indiana and the second largest in Ohio. In a specific sense BANC ONE's progress toward interstate banking began in 1979 when the common identity, BANK ONE, was adopted by all the Ohio banks, replacing both individual bank names and the corporate identity of First Banc Group of Ohio. In a larger sense BANC ONE has prepared for this event since the Cor-poration began operations in 1968 under its phi-c r.. .Ne#' y'[ V losophy of the " uncommon partnership". This unique combination of strong local autonomy 7. for affiliate banks' operations in their respective communities supplemented with rigorous cen-tralized financial controls remains as essential k in an interstate environment today as it did i when BANC ONE first expanded outside of the f Columbus, Ohio area in 1968. Features in the 1970,1978 and 1981 Annual Reports narrated how the uncommon partnership operated for prospective affiliates. This year's report con-tinues that story, now expanded to present a hypothetical interstate bank affiliation process. One of the most J.nificant events in the Corporation's history was the affiliation with k American Fletcher Corporation, completed on i January 26,1987. American Fletcher Corpora-tion owns five Indiana banks, led by American Fletcher National Bank in Indianapolis, and has total assets of $4.5 billion. Its Indiana banks operate 79 banking offices and it has extensive John B. McCoy, Chairman i 2

consumer 6 nance, mortgage banking and leas-cents per share. The Corporation's 1987 earn-ing operations. Following the affiliation, Frank ings growth objectives have been established E. McKinney, Jr., Chairman and chief executive based on the level of 1986 earnings excluding officer of American Fletcher Corporation, was these charges. elected a director and President of BANC ONE During 1986 BANC ONE's affiliates CORPORATION. John B. McCoy was elected to expanded the already significant commitment the position of Chairman of BANC ONE and to specialized lending areas. Extreme com-continues as the Corporation's chief executive, petitive pressures in international and large As President, Frank McKinney will have a major wholesale lending functions have created com-role in setting the Corporation's future strategic modity like pricing structures for those loans. direction. In addition Mr. McKinney will be the By making initial investments to develop chief executive of the subsidiary bank holding sophisticated data processing systems and to company, BANC ONE INDIANA CORPORATION. develop staff expertise BANC ONE can realize This company will oversee the operations of superior returns in lending areas not accessed BANC ONE's nine present and three pending by the majority of its competitors. Four areas: affiliate banks in Indiana. This organizational credit cards, student loans, small and middle-structure is expected to serve as the model market equipment leasing and automobile leas-when significant market presence is established ing account for over one fifth of BANC ONE's in additional midwestern states. loan portfolio and collectively generate yields BANC ONE's net income for 1986 was just approximating twice the prime rate. The newly under $200 million. This income figure has affiliated banks have enhanced BANC ONE's spe-been restated to reflect all acquisitions com. cialized lending strengths. BANK ONE, pleted through January 1987. The Corporation's LAFAYETTE operates an affinity credit card pro-strong earnings power is shown through rela-gram for American Automobile Association tive rankings. Based on average assets for 1986 members in Indiana, Illinois and Ohio, and it L BANC ONE was the 34th largest banking orga-currently has $160 million in card receivable nization in the United States; however, only 15 balances. BANK ONE MERRILLVILLE is the banking organizations reported higher net nation's second largest generator of Health Edu-income. BANC ONE's 1956 net income will rank cation Assistance Loans to medical and dental among the 200 highest among all U.S. com-students. BANC ONE INDIANA CORPORATION panies and is the ninth highest reported by any has 46 consumer finance offices in Indiana, Ohio based company. Net income per share was Michigan and Kentucky specializing in second $2.13, an increase of 10.4% over restated 1985 mortgage financing. HCL Leasing, which was net income per share of $1.93. Special charges acquired by BANC ONE LEASING, has an $85 and expenses relating to the merger of Ameri-million portfolio of office equipment leases dis-can Fletcher reduced 1986 net income by eight tributed throughout the country. Following the recent affiliations, BANC ONE now operates 459 banking offices, making this the largest retail branch network in the midwest and one of the ten largest in the United States. A large portion of the Corporation's 1 1 3

SANC ONE CORPORATION investment in research is directed toward this mance to the Corporation's by-laws. He will branch system. The experimental financial ser-continue to serve as a director emeritus. Seward vice center branch in Upper Arlington, Ohio, D. Schooler whose banking career with BANK which offers brokerage, real estate, travel and ONE, COSHOCTON spans over 60 years and insurance services in addition to retail banking who has been a BANC ONE director since 1973, in one location, has proved highly successful. will retire as an emeritus director. Both Mssrs. Retail marketing concepts tested there will be Westwater and Schooler have played vital roles incorporated in new branch locations and some in guiding BANC ONE throughout most of its existing sites will be retro-fitted to offer a broad-history. ened range of financial products. A continuing Five affiliate chief executives who have study of branch and product profitability is served their banks from before their affiliation underway. In 1986 BANC ONE affiliates pur-with the Corporation have retired, At four of chased eight branches from other financial these banks their successors have been pro-institutions and 25 branches were consolidated moted from within. Stanley J. Calderon suc-to create more effective economic units. ceeds James A. Posthauer at BANK ONE, BANC ONE has enjoyed a reputation of LAFAYETTE, John D. O'Shea has taken over leadership among banking organizations in data from Harry Kuhner who served at BANK ONE, processing. To maintain this position BANC PORTSMOUTH for 46 years, Thomas B. i ONE has entered into a joint venture with Elec. Heringhaus replaces Gilbert J. Wellman as the i tronic Data Systems Corp. (EDS) to design and chief executive of BANK ONE, LIMA.hich he build a complete retail bank processing system co-founded, and Robert L Byers has succeeded for major financial institutions. No such pro-the late J.E. Giffin at BANK ONE, BELLAIRE. In cessing system is currently available in the U.S. April Karen N. Horn will become chairman and This project which will take over three years to chief executive officer of BANK ONE, complete is designed to provide BANC ONE and CLEVELAND, succeeding Ralph W. Abelt who l other participating banking organizations with retired in December. Mrs. Horn has been presi-l the most advanced data processing capabilities dent of the Federal Reserve Bank of Cleveland for the decade of the 1990's. EDS is the nation's since May 1982. In that capacity she played a i largest third party processor for banks and has major role in resolving Ohio's 1985 thrift crisis, enormous financial and staff resources to con-Mrs. Horn, who has a doctorate in economics, tribute to the project. Norwest Corporation, had been an executive with First National Bank which operates a multi-state, multi bank fran-of Boston and held the position of Treasurer of thise in the upper midwest and has assets of Bell Telephone of Pennsylvania from 1978 to over $20 billion, recently joined in this venture. 1982. Her extensive executive experience will At the most recent quarterly board meeting enable her to direct the development of BANC Robert D. Walter was elected a director of BANC ONE's fourth largest affiliate bank operating in ONE. Mr. Walter is the chief executive of Car-the highly competitive Cleveland market. dinal Distribution, Inc., a major Columbus, Ohio, based wholesale food and drug distributor. William K. Westwater who is one of BANC ONE's six original directors, having served since 1968, i will not stand for reelection in 1987 in confor-i l 4 l

The cover of the 1967 annual report carried the sub-title:"We've Just Started". Those words "15,000 People Who Care" does more than posi-are equally appropriate now, twenty years later. tion BANC ONE in the market: it serves as a While 1986 was a year of considerable accom-constant challenge for every member of the plishment in getting started in interstate bank-BANC ONE team to put quality service first. In ing,1987 and future years will provide even 1986 BANC ONE established BANK ONE Col-lege, a two-week residential educational experi-dreater opportunities. Continuing expansion ence for management representatives from each and development in the eight state region open affiliate. The curriculum emphasized leadership to BANC ONE is an essential facet of our strat-edy. We are fortunate that legislatures and gov-skills and featured interactive discussions led by ernors in Ohio and neighboring states have distinguished outside speakers and by BANC responded to the rapidly changing nature of ONE's senior management. Following evaluation financial services and have created a framework of the prngram, the college will be expanded in which well-ordered geographic growth is pos-this year to two academic terms, again involving sible. As always, in exploring future affiliations management from every subsidiary. The oppor-BANC ONE will seek to entiance the long range tunities BANC ONE's growth has created for our value of our shareholders' investment and will staff will be extended to the more than 3,700 avoid asset growth without commensurate staff members who joined us through the 1986 increases in earnings. affiliations. Through both the new and old The highest corporate priority in 1987 will members of our uncommon partnership BANC be to integrate the operations of our new affili-ONE can extend its record ofinnovative achieve-ates. In this the " uncommon partnership" phi-ments in banking and superior financial perfor-losophy provides the overall direction. While in mance for our shareholders. ) many instances BANC ONE will introduce addi-tional new consumer banking services to the markets of our new affiliates, in many other { q' g' cases these new banks bring products and ser-vices all BANC ONE banks can use. We expect the affiliates of BANC ONE INDIANA with their John B. McCoy chairman capabilities and established market positions in consumer finance, mortgage banking, and fixed income trust rnanagement all supported by strong data processing operations to play an especially vital role in the integration process. The success of a banking organization as a deliverer of financial services ultimately rests on the quality ofits people providing those ser-vices. BANC ONE has recognized this and is seeking to become the industry leader in qual-ity of customer service. The corporate theme of I 5 1___________________._________._._____._._______.___._._

dAMC ONE CORPORATION y A Marriage MadeIn Heaven? ...a fictional representation of the affiliation process of an imaginary bank. August 5 The plane touched down easily and taxied holding company idea to other states. to the waiting car. It had been a brief "Hi, John. Nice of you to pick me up." flight from Indiana. Larry Hand thought "I wouldn't have it any other way. it was a good idea to slip into Columbus After all, how many times will you and I for a final meeting with John McCoy. get to do this?" Joining BANC ONE hadn't been "Well, if we do it right, John, I think complicated, once the decision had been it could become a great way to affiliate made, but there were important with out-of-state banks. Lots of other understandings among everyone that still holding companies may end up doing the needed agreement. Hand had been same thing." president of his Indiana bank long The two bankers were deep into the enough to know the value of properly conversation by the time McCoy eased handling last minute details. the car into the traffic headed for "Hi, Larry. Over here." It was John downtown Columbus. The plan that had McCoy, BANC ONE president who had been worked out would create a holding urged the meeting once Hand had raised company in each state in which there the question about extending the Indiana was a significant number of affiliate The diverse market served by BANC OhE afRliates stretches across four of the major states in the lotter Great Lakes region. l b

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e BANC ONE CORPOR ATION banks. Each statewide holding company "The more the merrier," McCoy in turn would be a member of BANC agreed. "But that brings up my second ONE CORPORATION. The proposed reservation.We must maintain the organization would be introduced with ' Uncommon Partnership.' The local Hand as chief executive officer in Indiana banker must still run the local bank." and operating from his lead bank. Hand drew an imaginary check mark "The more I think about the in the air. "I've put a mark beside that as statewide holding company idea," McCoy the number one requirement. Your said, "the better I like it. I've come up twenty year success story in Ohio is with only two reservations." completely convincing. Great Lakes Larry nodded easily. "Well, that's two Uncommon Partnership, here we come." good reasons for us to meet." They both laughed as the picture McCoy pressed on. "The first separately formed in their minds. It was reservation has to do with layering. We've good to feel at ease with an idea, particu-got to be certain we don't just add larly one as far reaching as the formation unnecessary management at the state of a multi-state holding company holding company level. That could defeat involving most of the states in the Great us before we get started." Lakes region. That certainly was the "I agree, John. Layering will become opportunity and the " Uncommon a bad word." Hand rolled the thought Partnership" would become a solid around in his mind. "My thinking was cornerstone for its invention. McCoy that we draw from the corporate staff would see to that. here in Columbus where we can and then Later, going up in the bank elevator, add only when it becomes obvious. With McCoy said, " Larry, I've asked a couple each of the state holding companies directors to stop around and say hello drawing on the financial controls, data and I want to introduce you to our processing, and marketing effort of the senior staff." central staff, we'll eliminate a bundle of duplication." dominated by the major metropolitan areas of Cleveland. Akron, foungstown. Columbus, Dayton andIndianapolis. b ~ n h 8

1 m Hand smiled. "There's nothing more important than meeting the new bride. The official purpose of the gathering Particularly when she's willing." was quickly softened as John McCoy got "An'd desirable," McCoy added. the meeting started in his easy manner. Affiliating with a bank holding " Gentlemen, let me say how delighted we company is not always a marriage made are to welcome you to BANC ONE. Larry in heaven, but when the principals share and I both thought it would be a good common beliefs, chances of success are idea for all of us to see that the other vastly improved. At least that was the people don't have two heads and that we feeling when McCoy began the private really don't have eyes in the middle of our foreheads." meeting. %buld the feeling last at least through the honeymoon? Would it even The quick laughter triggered several carry over to the next round of major comments about the wonders of cosmetic meetings? surgery but the easy feeling of companion-ship was firmly established. McCoy September 15 added, "I want you to be sure to ask every There were twenty-two officers in the question in your mind. Even those you room. Eleven from each bank. It was think might be embarrassing to us." officially defined as a duc diligence The invitation for an open discussion meeting, or at least the conclusion of the was followed by a series of sensitive and due diligence process which provided a revealing questions ranging from the forum in which parties of both organiza-future direction of merger plans and the tions could investigate the operations or expectations for data processing to the question the procedures of either bank. requirement to change affiliate bank i It typically served the legal process of names to BANK ONE. uncovering, in a " diligent manner," all On the latter issue, McCoy detected warts and blemishes of the acquiree or the probing and emotional nature of the acquiring bank-question. "Rather than have me stumble around for an answer," he said, "let me have John Fisher, who runs our market-l But the areas personality is more influenced b the rur I countryside andsmaller co V mmunities than F 9

DI 6ANC ONE CORPORATION ing effort, show you a video tape of how he said,"but some of my people want to the name was first chosen almost ten hear the specifics of what happens, after years ago. It details the rationale behind the honeymoon. What happens to our common identity." retirement programs and job stability The room was quickly darkened as particularly?" the video presentation rolled up on the It was a subject that had been openly screen, the gist of which dealt with the discussed before and it demanded an need for all affiliates to carry a common expansive response. McCoy turned to name to strengthen the relationship of Roman Gerber, BANC ONE Executive all affiliates with one another and to Vice President, to field the question. identify the corporation within the Based on his experience and sensitivity to investment community. The presentation the subject, Gerber related the human included quotes from other affiliates' resource policies and practices that had presidents about the value of the been developed over twenty years and universal name and the general lack of almost fifty affiliations. Gerber concluded negative community reaction to the by noting,"We've tried to build flexibility name change. The video concluded with into these programs, but as in all good a future oriented discussion of the need marriages, we'll probably hit a bump or to compete eventually with other major two in the road. If we do, we expect to financial organizations in the Great work it out to your satisfaction." Lakes area. The common identification of The meeting wound through a series all affiliates was an acknowledged of equally tough and important issues. strength in the current banking environ-Hand finally guided the discussion to the ment and one destined to increase in core subject of budgeting and financial future value. planning. "I might as well get right at As the lights came back up, McCoy the heart of this thing. What kind of invited Hand to conduct the balance of earnings performance are you expecting the meeting. "McCoy, you and your from us," he asked? And then added people have done a fine job explaining the BANC ONE management philosophy," l by the industrial and metropolitan centers. Many consider the area to be "the real America" ofour country. l7 ~ e.*) '~ 1,e ~., gl l Q. 1 i 10

7 almost as an afterthought, "And how can The voice on the phone was not a you help?" stranger to 16d. Boardman handled That brought Pat Handley, BANC acquisitic,ns for BANC ONE and had dealt ONE Chief Financial Officer, and with Hand at various times during the Treasurer George Meiling, to the front of merger negotiations. "Hi, Bill, what can I the room for an in depth evaluation of do for you?" Larry asked. the predicted earnings performance of "We're starting to get some calls from the combined organization. Through a the letters we wrote to some of the banks series of graphs, Mandley demonstrated in other states. Roger McGraw and I 1 potential cost reductions through a thought you might combining of selected backroom func- " Hold up a minute, Bill," Hand tions. The cost saving opportunity was interrupted. "Who's Roger McGraw?" reemphasized by Meiling as he presented "You probably haven't met him," vital comparisons of the performance Boardman answered. "He was CEO of our from comparable holding companies. North Falls National Bank when they McCoy ended the meeting by drawing joined the holding company several years j the obvious comparison of m?rriages ago. He's with us in the Corporation now being built on mutual respect, shared and works with me in the acquisitions objectives, and solid economics. It was area." i one of the Indiana bankers near the back "OK, I get the picture," Hand added of the room who drew concluding quickly. "What can I do?" laughter by noting that in marriages and "Well, we're making some calls on a banking, < d economics beat shotguns couple of important banks," Boardman every tirr. said, "and I thought it would be great if you could join us to talk about some of October 16 the benefits you see in affiliating with us." " Larry, glad I found you in. This is Bill Plans were quickly made to meet as Boardman over at BANC ONE." Boardman commented, "By the way, Roger McGraw has a great story to tell The pictures on these pages, including the skylines ofour inajor cities on the cover of this report, .h S h. 4 ~ 9 % d t t k. % L /

BAMC OME CORPORATION about what has happened to his bank "It is pleasant to be with you tonight, since it joined BANC ONE." especially since I see some of your future "I hope it's a success story," Har.d affiliates from Indiana in the audience," laughingly added. he began. "I guess I'm not surprised "It's that all right," Boardman said, they're here, even though I understand "and he tells a good story about how the the affiliation hasn't yet been approved by ' Uncommon Partnership' really works." the regulators. I was going to make some "OK, count on me," Hand said as he comment about premarital relationships, hung up. "And I'll see you over there but I'll let it pass. I do want to spend this 'Ibesday night for the big meeting." evening with you sharing my view of what I see happening in banking the October 20 balance of this decade. And it isn't all The room lights dimmed and McCoy rosy." quickly stepped to the podium. Richards launched into a fast paced "It is a genuine pleasure for me to presentation laced with statistics which introduce our guest speal;er tonight. He suggested that the interstate concentra-has the reputation of being one of the tion sweeping across the country would most insightful analysts in our business." eventually evolve into nationwide McCoy was introducing Monty Richards, banking systems created from a linking from National Securities, to the BANC of major regional holding companies. ONE senior officers attending the " Earnings performance, to drive a specially arranged quarterly President's strong P/E, will become an even greater Council Meeting. "We think he deserves management concern by the end of this that reputation since he ranks our decade. Those with a consistent record of holding company among the best outstanding results, particularly those performers in banking," he added as with strong equity to asset ratios, will be Richards, "Nums," as he was known in the survivors," he concluded after the industry, stepped to the podium. display the flavor of the StNC ONE market. While diverse in its economy, it is also a snug and lightly woven geographic O b 4. d. d' a a a 12

I a Oipping through a series of slides and where BANC ONE would fit into it. I demonstrating his prediction. "I'm He thought te himself that the discussion anticipating only a few unusual financial near the end of the meeting about organizations surfacing in each of the dealing with future competition and how regions of our country. These will have to get ready for it, might turn out to be what I call " Fortress Balance Sheets." the toughest issue of all. They will be marked by strong expense it was late when he pulled into the control practices, selected centralization, driveway. The neighborhood was quiet and will lean toward autonomy of with most of the houses darkened for the operations. I also have to add that the night. After shutting off the motor, he sat model BANC ONE is developing, particu-in the quiet. His thoughts formed around larly for your interstate expansion, seems the many things that needed his atten-to be a very practical solution for the tion. Maintain the earnings, improve the future," Richards concluded. customer service, motivate and recognize The applause signaled more than just the staff, expand the interstate activity. I a polite reaction to a thoughtful presenta-He quietly opened the car door and tion. It also carried the genuine acknowl-started for the house. It was going to be edgement of having been recognized as a good marriage. Maybe one even made an outstanding performer. in heaven. "I'd better send Larry a Driving home that night, McCoy wedding invitation tomorrow just so he watched the blue BANK ONE sign atop knows how we feel," he said to himself, the main office building recede in the "Maybe I'll also send him a fifty year rear view mirror. He smiled to himself anniversary card so he'll know what we're over the good solid feeling he knew planning." others shared about the evening. Sure, it had been all upbeat. Great fellowship. A complimentary but challenging speaker. And lots of talk about banking's future area that is a great place to earn a living and raise a family. For us, it is also a great place to be in banking. s ? O \\ 13 l

cANC ONE CORPORATION Star:ing A Great New Future American Fletcher officially affiliated with BANC ONE CORPORATON on January 26,1987. It is a significant date since it establishes a milestone equalled only by the founding date of the Corporaton - October 16,1967. Both dates mark the beginning of great new Frank E. McKinney. Jr.. American F! etcher ChairmantCEO andJohn B. McCoy, fut97e5' Inn [u$nYtSc$at)[at$[oNNa#[n$i$ Yon $[nba## $,#I9N.' "' " As the tenth largest bank merger in ry American banking, the affiliation is important merely by virtue of its sheer size. More significant is the future expectation of improving the customer service, enhancing the shareholder return and providing growth oppor-tunities for the skilled staff. Additionally, the organization model for Indiana resulting from the merger could QS 5 ,.. ~, - n,, ee" 14 W e-

IFHis One of a series ofadvertisments used to launch the name y change ofAFNB to BAVK ONE. O EATFurygg M '*%D OK BD OtlCheriS a. 5 ~. ;ll::~,, g i:p:::$'!"f.::,; Q9yg. 4: ,~-,,,:,'~'.;';; ^+... +.- t.. e m 7 ~,., ~ ~,,, wa r.,,,, %w%%;{,$";u,c w. ' *[,yrlJ: j become valuable in establishing BANC ll

• +C"lrcyfj},'#gjgY2ONE ONE affiliates in additional states.

g The introduction of BANC ONE to a9I.y.p- ~ ~ - ~ American Fletcher employees took place ~ ~ ~

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f f-,._ c~y. g~4- at a total staff meeting held February 4 9d r.T in the Indiana Convention Center in ~* '.:. ~~,.

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.:% e Indianapolis. It was not a meeting of ~=m ....p. s. r r Y. pin-striped-suited, glass-eyed bankers .yj.. _:~.y 7'p p N.:p- .~ ..f discussing interest margin and gap [;. -;'uc0' l financing. Rather, it was an exciting -Q ql g -TR;;. j gathering of friendly and energetic J.; _ ! ! f _., 4 o ~~ people. It was a spirited meeting .2.~p. c p-3- marked by comradery and well-being. [ *,"*,*M g.:~, i m. l $'$@3? These pictures, showing only a few I of 2500 attending, attest to their spirit ., ?ddE- .l and expectations. It truly was the start '97jjs l! of a great new future. e t'= .,e.'.K'" 'ei + . h,. ' < *'Q 4 ; m7 L.. .~ '. -y u se..- w, 33 3g t n g' L A g 8 e-e 7 3 b M_< 4 f >g s

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,jANC ONE CORPOR ATION and Subsidiarks C:nsolidated Balance Sh:et (as restated) December 31. December 31, 1966 1985 $(thousands) Assets: Cash and due from banks (Note 16) $ 1,242,871 $ 1,289,246 Deposits in other banks, interest bearing (including Eurodollar placements and negotiable certificates of deposit of $537,665 and $735,387 at December 31,1986 and 1985) 577,699 825,208 54,845 494,182 Short-term investments Securities (market value approximates $3,312.200 and $2,926,500 at 4 December 31,1986 and 1985) (Notes 1 and 16) 549,590 725,388 j United States government obligations 664,597 223,288 Obligations of federal agencies Obligations of state and political subdivisions 1,310,672 1,707,075 665,881 226.324 Other securities Tbtal securities 3.190,740 2,882,075 Loans and leases (Notes 1 and 6): - i Commercial, financial and agricultural 4,543,037 3,647,608 Real estate, construction 497,421 308.204 Real estate, mortgage 1,389,199 1,581,067 4,125,171 3,702.839 Consumer 808,236 808,356 - l Tax exempt 467,867 325,310 Leases Cross loans and leases 11,830,931 10.373,384 Unearned loan and lease interest (Note 1) 281,859 311,672 Total loans and leases 11.549,072 10,061,712 f._ Peserve for possible loan and lease losses (Notes 1 and 5) 156,670 128,895 j Net loans and leases 11,392,402 9,932,817 Other assets: Pank premises and equipment, net (Notes 1 and 12) 265.134 258,042 ,i Interest earned not collected 159,032 176,202 Other real estate owned (Note 1) 19,685 19,992 Excess of cost over net assets of affiliates purchased (Notes 1 and 2) 147,247 131,203 Other 322,249 465,553 Total other assets 913,347 1,050,992 Total assets $17,371,904 $16,474,520 The accompanying notes are an integral part of the financial statements. 3 i 2 l. ";d 1.1 [ s a 16

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$ ;;[ December 31. December 31, f' 1984-1965 i Liabilities: j Deposits: t' Demand-non-interest bearing $ 2,810,286 $ 2,584.084 Demand-interest bearing 1.546,014 1.178,949 Savings 1,074,481 1.124.817 Money market accounts 2,664,900 1.846.925 Time 5,274.986 5.674.138 Total deposits 13,370,667 12,408.913 Short-term borrowings (Note 8): } Federal funds purchased and repurchase agreements 1,823,480 1,747.152 I [ Other 321,267 279.763 I l Total short-term borrowings 2,144.747 2,026.915 Long-term borrowings (Note 9) 169.734 187,99, j Other liabilities: Accrued interest payable 104,205 144,414 Other 282,571 541,799 l Ltal other liabilities 386,776 686.213 Totalliabilities 16.071,924 15,310.038 Commitments and contingencies (Notes 7 and 16) Preferred stock: Series A convertible, no par valu,5.000,000 shares authorized. 988,418 and 996,042 shares issued respectively (Note 15) 49,421 49,802 Non-convertible, $100 par value, 100,000 shares authorized, 10,000 shares issued and outstanding in 1985 1,000 Common stockholders' equity (Notes 4. I1 and 15): l Common stock, no par value, $5 stated value,300,000.000 shares authorized,90.988.044 and 90,591,884 shares i issued, respectively (December 31,1985 shares reflect the 10% stock dividend effective February 7,1986) 454,940 452.960 Capital in excess of aggregate stated value of common stock 388,879 387,807 Retained earnings 406,740 278.246 Total common stockholders' equity befon treasury shares 1,250,559 1.119,013 Less 345.456 treasury shares, at cost (shares reflect the 10% stock dividend effective February 7,1986) (5.333) Total common stockholders' equity 1.250,559 1.113.680 Total liabilities, pnfernd stock and common stockholders

• equity

$17,371.904 $16.474.520 The accornpanying notes are an integral part of the Gnancial statements. I 17

W uwe one conponmow ene sutdri# *m n...: .,w. ~" Consolidated Statement ofIncome - for the three years en&d December 31,1986 (as restat.ed) l f 1986 1985 1984 4 5(thousands. e;xcept per share amounts) e summmmmmmmmmmes Intew.t hicome (Note 11: $1,250,807 $1,164,857 $1,042,430 Interest and fees on loans and leases Interest and dividends on: l Obligations of U.S. government and federal agencies and 140,856 145,617 129,244 other securities 123,639 93,818 68.443 I Obligations of states and political subdivisions Oth er interest income, including interest on Eurodollar placements and negotiable certificates of deposit of 56,081 91.510 143,805 $30,900, $53,115 and $104.544 in 1986,1985 and 1984 _ 1,571,383 1,0 5,802 1,383,922 Totalinterest income Interest expense: l Interest on deposits: 250,487 230.373 220,418 Demand and savings dwosits 497,425 543,575 507,085 j } Time deposits 138,103 128.52_7 142,175 j - Other borrowings 886,015 902,475 869.678 Totalinterest expense 685,368 593,327 514.244 i Net interest income 130,063 111,770 82,386 j Provision for loan and lease losses (Note 5) Net interest income after provision for 555.305 481,557 431,858 loan and lease losses i 41,868 36,027 34,429 l Other income (Note 11: income from fiduciary activities 58,187 52,383 46,450 ( Service charges on depos accounts 89,399 84,525 68,602 Card processmg at d service income 25,252 1,333 748 Securities gains 61,333 61,614 41,997 Other 276,039 235,882 192,226 'fotal other income j Other expenses. 280,788 247,242 221,487 35,033 27,395 25,722 f Salarbs and retted costs Net occupancy expense, exclusive of depreciation 39,983 35,747 32,263 j Deprecation and amortization (Note 11 66,616 47,412 36,930 1 49,199 43,321 34,618 I Outside services and processing Communication and transportation 136,922 120,760 102.094 l Other 608.541 521,877 453,114 1 Totalother expenses 222,803 195,562 170,970 locome before income taxes Income tax provision (benefit) (Not,: 10): Income excludin;; wcurities transactions 12,251 20,996 28,241 ~ I 10,749 (2,258) (391) Securities transactions $ 199,803 $ 176,824 5 143,120 Net income Per common share information (amounts reflect the l 3-for-2 common stock split r.fective August 6,1985 and the J 10% common stock dividerd effective February 7,1986) $2.13 $1.93 $1.62 Net income 91,125 88,779 B4,812 -l Weighted average common shares outstanding (000) \\ 's The accompanying notes t.re ariintegral part of the finanrialstale5 mat 5tY s 18

BANC ONE CCgORATION and Subs #ms ~ Consolida:ed Statem:nt cf Changes in C mim Stockh;lders' Equity for the three years ended December 31,1986 c.,;,al h (as reuated) Excess of j $] g T Common Stock Stated of Common Retained Thasury Stockholders

• 1(thousands)

Shares Value Stock Earnings Stoch*' Equity Salance, December 31,1983 37.535,389 $187,677 $268,454 $115,836 $2.746 $ 569,221 i uohng of mierests IE774,925 S3,875 (22.326) 147.391 6,255 202,685 P l estated balance at December 31,1983 54.310,314 271.552 246,126 263.227 9,001 771,906 R Net income 143,120 143,120 Cash dividends: Corporation: Y Common (5.59 per shbreja' (35,042) (35,042) A Preferred ($5.50 per share) (5.483) (5.483) Pooled af6tiates (9,677) (9.677) I Treaaury shares purchased (322.108) 7,024 0,024) Shares issued in acquisitions 2,021.240 10,106 34,907 (5.787) 50.800 Conversion of Series A Preferred into common 495 2 10 12 Pooled af61iate stock dividend and other 31.444 157 (470) 686 (2.538) 2.911 Balance. December 31,1984 56,363,493 281,817 280,575 356,831 7,700 911.523 Net income 176.824 176,824 Cash dividends: Corporation: Common t.$.70 per share)*' (43.788) (43,788) Preferred ($5.50 per share) (5.483) (5.483) Fooled af61iates (10,940) (10.940) Weasury shares purchased (223.301) 5,105 (5,105) Shares issued through public offering, net of issuance costs 2.357,329 11,787 61.825 (3,163) 76,775 Shares issued in acquisitions (592) 592 Common stock split. 3 for-2, effective August 6.1985 (Note 15) 24.266.385 121,331 (121,331) Conversion of Series A Preferred into common 1,962 11 25 36 10% common stock dividend at fair value (Note 15) 7.280,064 36,400 158,341 (194,741) Pooled at61iate r,tock issuance and other 322.651 1.614 8.372 (457) (3.717) 13.246 Balance, December 31,1985 90,591,884 452,960 387.807 278,246 5.333 1,113,680 Net income 199,803 199.863 Cash dividends: Corporation: Common (5.82 per share) (54,585) (54,585) Preferred ($5.50 per share) (5,449) (5,449) Fooled af61iates (11,046) (11,046) heasury shares purchased (39,400) and retired (167,268) (836) (1,196; (869) (1,163) Shares issued in acquisitions 85,336 427 950 (4,464) 5,841 -t Cor eraon of Series A Preferred in.a cemmon 24,400 122 259 381 iboled af 61iate stock issuance [ and other 453,692 2.267 1,059 (229) 3,097 Balance, December 31,1986 90,988,044_ $454,5ft $388,879 $406.740 $1,250,559 Per share amounts reflect the effect of the 3-for-2 common stock spht effective August 6.1985 and the 10% common stock dividend effective February 7.1986. +Endmg treasury shares were 334.703 and 345,456 at December 31,1984 and 1985, respectively. The accompanymg notes are an mtegral part of the 6nancial s'.stements. 19

w-s BANC ONE CORPORATION and Subsidiaries Consolidated Statenent cf Changes in Financial Pbsition for the three years ended December 31,1986 (as restated) 1986 1985 1984 Funds Fuk'Is Funds Funds Funds Funds i Pronded Used Provided Used Provided Used

=

$tthousandsl

==

$ 143,120 $ 199,803 $ $ 176,824 5 Net income items not requiring use of funds during period: Depreciation, amortization and 32,364 25,364 35,455 Provision for loan and lease losses 130,063 111,770 82,386 accretion, net %7 1,700 11,401 f Deferred federal income tax 376,722 l 320,958 %7 l 252,570 3 Operations 60.211 50,202 j} f 71,080 Cash dividends dec% red Purchase and re.ie anent of treasury 1,163 5,105 7,024 shares and othei I,000 Retire preferred st ack 592 50,800 issuance of stock ter acquisitions 5,841 76,775 Common stock pub ic offering j Issuance of commor, stock by pooled 93,246 2,911 f, l affiliate and other 3,097 l Issuance of preferret stock by pooled 1,000 affiliate 8,938 l 73,243 91,613 65,316 l 53,711 57,226 Equity transactions 797.863 1,301,430 1.303,065 i Deposits 76,328 549,434 3,547 q l Federal funds purchased and repurchase agreements 89.851 8,472 18,484 Commercial paper 106,613 92.804 56,503 e Other short. term borrowings, net 328 34,909 54,438 Long-term borrowings, net Acquisition of subsidiary banks: 356,941 163,891 Deposits 13.426 Other borrowings 74,912 Deposits and borrowings 1,202,845 } 141,522 2,006.578 l l 1,751, % 6 328 Deposits in other banks, interest bearing 247,509 68,166 560,231 l Short-term investments 447.231 6,970 16.117 273,429 791,592 166,624 Investment securities Sa.le of credit card loans 120,000 166,525 1,590,555 1,583,968 1,765,588 Loans and leases Acquisition of subsidiary banks: 130,958 S cunties and short. term investments 42,544 214.228 115,151 Net loans and leases 814,740 l 2,021,679 l 234.691 l 2.382,530 l 576,348 2.277,398 ) Earning assets Cash and due from banks 145,390 302,002 171,697 AJditions to bank premises and 38,777 31,020 34,120 equipment, net Excess of cost over net assets of affiliates 19,46& 3,867 20,512 purchased Acquisition of subsidiary bankst. 592c 61,608 1 108,215s e ; M. h3 7 ~~.y[s% N'Ot* - Other assets v. 6,609 .s . 5,618 c., ,~ . $ + $ nc 18.315 ' l Other liabilities W ~- Other, net [D!:, 'i Q,253r l Other

• $3,641,20t$

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~- -,p7,y E BANC ONE CORPORATION Par;nt Comptny On!y ~, ~ Balanca Sheet (as restated) 4 December 31. December 31, 5(thousands) 1986 1985 Assets: Cash and due from banks S 931 1,029 Eurodollar placements 25,000 38,300 [ Repurchase agreements 2,700 Investment in securities of affiliates (Note 1) 1,208,305 1,043,167 Amounts due from consolidated subsidiaries 93,428 37,960 Securities (market values approximates $10,497 and $32.233 at December 31,1986 and 1985)(Note 1): Obligations of state and political subdivisions 20,000 Other securities 2.540 3,177 l 4 Excess of cost over net assets of af61iates purchased, net of accumulated amortization of $21,104 and $15,724, respectively (Notes 1 and 2) 118,425 120,597 k Other assets 13,370 14.461 lbtal assets $1,464.699 $1,278,691 Liabilities: I Commercial paper S 69,750 $ 23.300 i Note payable to affiliate 2,000 9% Notes payable (Note 9) 15,000 16,500 l 11%% Notes payable (Note 9) 50,000 50,000 S Accrued interest payable 1,195 3,260 Dividends payable 15,943 13,638 Other liabilities 10.831 7.511 Totalliabilities 164,719 114,209 t i Commitments and contingencies (Note 16) i Preferred stock: Series A convertible, no par value,5,000,000 shares authorized, 988,418 and 996,042 shares issued, respectively (Note 15) 49,421 49,802 Non-convertible, $100 par value, 100,000 shares authorized, 10,000 shares issued and outstanding 1,000 Common stockholders' equity (Notes 4,11 and 15): Common stock, no par value, $5 stated value,300,000,000 shares authorized,90,988,044 and 90.591,884 shares inued, respectively (December 31,1985 shares reflect the 10% stock dividend effective February 7,1986) 454,940 452,%0 l Capital in excess of aggregate stated value of common stock 388.879 387,807 Retained earnings (Note 1) 406,740 278,246 Tbtal common stockholders' equity before treasury shares 1,250,559 1,119.013 Less 345,456 treasury shares, at cost (shares reflect the 10% stock dividend effective February 7,1986) (5,333) 1btal common stockholders' equity 1,250,559 1,113,680 Tbtal liabilities, preferred stock and common stockholders

• equity

$1,464,699 $1,278.691 [ f,i.: L. The accompanymg notes are an integral part d the nnancialstatements,d,. ar'; f h A ((M, ? N M. ^[

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t ., m U HANC ONE CORPORGiE3 REI3 Company py l f Statemert ofIcccm3 for the three years ended December 31,1986 (as restated) 1986 1985 1984 5(thousands, except per share amounts) mumummmm mmmes income: $ 76,580 $ 62.829 $ 56,095 Dividends from bank af61iates 8,530 35,433 30,934 Management fees from af61iates* Interest incow n' 'c D: 6,181 2,386 795 Af61iates 17,704 8,938 Obligations of U.S. government 644 613 Obligations of states and political subdivisions Other, including interest on Eurodollar placements of 525 ',314 269 $450, $766 and $2S3, respectively 366 338 353 income from other i, writy investments 563 495 414 Other income (243) 167 2.224_ Securities gains /(losses) 93,146 121,279_ 100,022 Totalincome Expense: 7,853 29,216 18.304 Interest 9,536 7,434 6,677 Salaries and benefits 289 26,042 19,609 Data processing

• 5,468 5.012 4,778 Depreciation and amortization (Note 1) 4,991 7,609 5,174 Professional fees and services 9,206 6,234 5,318 i

other 37,343 81,547 60,060 Tbtal expense Income before income taxes and equity in undistributed earnings of af611ates 55,803 39,732 39,962 g Income tax provision (bene 6t): income excluding securities transactions (7.184) (9.250) (6,223) (112) (376) 580 Securities transactions locome before equity in undistributed earnings of 63,099 49,358 45,605 afdliates 136,704 127,466 97.515 Equity in undistnbuted earnings of af6fiates $199,803 $176,824 $143,120

)

Net income f Per common share information (amounts reflect the 3 for 2 common stock split effective August 9,1985 and the 10% common stock dividend effective February 7,1986) $2.13 $1.93 $1.62 Net income Weighted average common shares outstanding (000) 91,125 88,779 84,812

• Tees paid by the parent for af61iata data processing in 1985 and 1984 were paid directly in 198ti.

The accompanying notes are an integral part of the 6nancial statements. i uFWa <e w p-~ N ~ ,ng g e ,b we ,,... z y-4 p g-22 I

,yy F_ -- CANC ONE CORPORATON Parent Company Onty , ',,.;A-e > F Statement of Changes in Financial Pbsition 7 ~ for the three years ended December 31,1986 (as restated) 5(thousands) 1984 1933 1984 { Sources of funds: j Operations: l Net income $ 199,803 $ 176,824 $143,120 Charges and credits included in operations not affecting funds durmg the current year: Equity in undistnbuted earnings of affiliates (136,704) (127,466) (97,515) Depreciation and amortization 5,468 5,012 4,778 Loss on sale of securities 243 Total from operations 68,810 54,370 50,383 issuance of common and preferred stock related to acquisitions 5,841 592 50,800 Common stock public offering 76,775 Issuance of common stock by pooled af61iates and other 3,u f7 13,246 2,911 1ssuance of preferred stock by pooled affiliates 1,000 Proceeds from repurchase agreements 141,013 i l Proceeds from commercial paper borrowing 46,450 23.300 l Proceeds from note payable to affiliate 2,000 1 Proceeds from sales and maturities of investments and interest bearing deposits 36,477 119,436 3,326 Decrease in cash and due from banks 98 26 Increase in dividend payable 2,305 2,851 1,601 Other, net 340 1,204 Total sources $ 165,078 $ 291,936 $251.238 L'ses of funds: Cash dividends declared $ 71,080 $ 60,211 $ 50,202 Retire preferred stock 1,000 g increase in investments and interest bearing deposits 2.783 37,477 136,693 f Increase in amounts due from affiliates 55,468 30,310 1,745 j, , Purchase and retirement of treasury shares 1,163 5,105 7,024 i Additional investment in subsidiaries 2,873 15,728 2.944 f Acquisitions 25,561 592 50,801 -l Repayment of notes payable 1,500 1,500 1,500 Repayrnent of repurchase agreements 2,700 141,013 Increase in cash and due from banks 329 Other, net 950 j Total uses $ 165,078 $ '91.936 $251.238 l The accompanying notes are an integral part of the financial statements. t eb ) )

mec oncokeoanoncetman l l Notes to Finandal Statements i I ~ (Q g a.; l i J Note 1. Summary of Significant Accounting Policies: ~

• The following is a summary of significant accounting policies followed in the preparation of the financial statements:

Principles of Consolidation: The consolidated financial statements include the accounts of the Cor-poration and all significant subsidiaries (affiliates). Material intercompany accounts and trvisacti ~' have been eliminated. For purposes of comparability, certain prior year amounts have been reclassi-fied. Financial information has been restated, as appropriate, to include two.lanuary 1987 affiliations (see Note 2) accounted for as poolings of interests. I Investment Securities: Investment securities are stated at cost adjusted for amortization of pre-mium or accretion of discount on the constant yield method. Gains and losses on securities are accounted for on the completed transaction basis in the year of sale on an " identified certificate" i basis. "Other securities" includes rnarketable equity securities valued at the lower of cost or market. As of December 31,1986 and 1985, the market value of these securities exceeded the cost.

)

a 1J Bank Premises and Equipment: Bank premises and equipment are stated at cost less accumulated .i depreciation. Depreciation is provided principally on the straight-line method over the estimated usefullives of the assets. Upon the sale or other disposal of the assets, the cost and related accumu-lated depreciation are removed from the accounts and the resulting gain or loss is recognized.4 m. Maintenance and repairs are charged to expense as incurred while renewals and betterments a? i y capitalized. J Other Real Estate Owned: Other real estate owned r I ' esents properties acquired by the Corpora-I tion's affiliate banks through customers' loan defaul The real estate is stated at an amount equal 1 to the loan balance prior to foreclosure plus costs irt rred for improvements to the property, but d T no more than the fair market value of the property. ,3 Provision for Loan and Lease Losses: The pro [shn for loan and lease losses charged to o expense is based upon each affiliate bank's past 1 ban and lease loss experience and an evaluation of potential losses in the current loan and isase portfolios. In management's opinion, the provision is T sufficient to maintain the reserve for possible loan and lease losses at a level that adequately provides for potentiallosscQ gx > l Income Recognition: Income earned by the Corporation and its affiliates is recognized principally - on the accrual basis of accounting. Interest income on some installment loans is recognized as mcome o!t.the sum-of-the-months-digits method. Under this method, the finance charge is reported i indocreasing amounts each month which provides an approximately level rate of return on thec tincElifcted load balance. Certain fees, principally service, are recognized as income when billed ? t'e'd. The affiliate banks suspend the accrual of interest when,in management % opinicasthiMMs Nij d@ection of all or a pertion of interest has become doubtfuh General %wh ~T c ] ' y nonacgrual, the Corporation % affiliates charge all previouslyaccruedp ungk a ' income. In future periods, interestwill be included in income to the elesntretihed A J

• > d ~ 4 * 'M principal recovery is reasonably assureds t

'7 %gQy y Employee Benent Plass: The Corporation and its affiHateshave various non-contribut plans covering substantially all employees 'rhere was $387,000 pensionplan expense re jp 1986 while $1,628,000 was recorded in 19Bo and $1,522,00&was recorded in 1984, including amoned tization of past service costs over ten to forty years. Adoption of the Corporation's actuarial cost method and assumptions by various affiliates acquired during 1986 resulted in a decrease in pension expense in 1986. The Corporation's policy is to fund pension cost accrued in the financial statements .a except for an affiliate that currently has no funding requirements but is recording pension plan d 24

t Y { *m, W p. ? e expense. The weighted average assumed rate of return used in determining the actuarial present value of accumulated plan benefits was 6% to 11% during 1986 and 1985. Accumulated plan benefits and plan net assets for the plan years beginning January 1,1986 and 1985 were as follows: 5(thousands) 1986 1985 Actuarial present value of accumulated plan benefits: Vested $67,323 $64,028 Nonvested 4,059 3.667 $71,382 $67.695 3 Net assets available for benefits $128,623 $117,662 4 ? The Corporation and its affiliates provide certain health care and life insurance benefits to eligible i retired employees. Substantially all of the company's employees may become eligible for those bene-1 fits if at retirement they have accrued 10 years of service as defined by the BANC ONE CORPORA-TION Retirement Plan. The cost of health care and life insurance benefits for retired employees is recognized as expense as incurred. For 1986,1985 and 1984, those costs totalled $485,000, $500,000 O, and $407,000. Direct Financing Leases: The leasing operations of the subsidiaries consist of the leasing of various y types of equipment under leases principally classified as direct financing leases and ranging in e maturity from three to ten years. Interest and service charges, net of initial direct costs, are de-7 ferred and reported as income in decreasing amounts over the term of the lease so as to provide an i .f approximate constant yield on the outstanding principal balance, k f Excess of Cost Over Net Assets of Affiliates Purchased: The excess of cost over net assets of i p affiliates purchased is being amortized on the straight-line method over twenty-five or forty years. I . j,' Interest Rate Swap Agavements: The Corporation uses interest rate swap agreements as part of its interest rate risk management strategy. Swap income and expense are recorded using the accrual e method. Swap agreements are marked to market when the asset or liability being hedged by the swap is sold or extinguished Fees related to swap agreements are amortized over the life of the swap. u I Investment in Securities of Affiliates (Parent Company Only): The Corporation's investment in securities of affiliates represents the total equity of all the Parent Company's wholly owned consoli-dated subsidiaries, using the equity method of accounting for investments. u i Y Note 2. Bank ns: I 87, the Corporation acquired all the outstanding capital stock of one Michigan and one banking institution. The Michigan affiliation was Spartan Bankcorp, Inc. in East Lansing p nsing) on January 2. The Indiana affiliation was American Fletcher Corporation in {. ' '!hdianapolis (Indiana) on January 26. O in 1986, the Corporation acquired all the outstanding capital stock of two Ohio, one Kentucky, seven T Indiana and one Michigan banking institutions. The Ohio affiliations included First-Union Bank in 4'fi e Bellaire (Bellaire) on Jantury I and The United Bank in Uhrichsville (Uhrichsville) on October 1. The p Kentucky affiliation was KYNB Bancshares, Inc. in Lexington (Lexington) on June 1. The seven 1 Indiana affiliations included First American National Bancorp of Plainfield (Plainfield) on January 1, k Purdue National Corporation in Lafayette (Lafayette) on June 1, Money Management Corporation in {,, Merrillville (Merrillville) on July 1 Citizens Northern Ba..i of Elkhart (Elkhart) on August 27, The v !T J 25 0

Carmel Bank and Dust Company (Carmel) on August 29, Marion Bancorp (Marion) on October 1 and First Crawfordsville Corporation (Crawfordsville) on November 1. The Michigan affiliation was The Citizens State Bank in Sturgis (Sturgis) on December 19. Also in 1986, BANC ONE LEASING CORPORATION acquired HCL Leasing Corporation for cash of approximately $14 million. On December 16,1985, the Corporation acquired all of the outstanding capital stock of Union Bank and Wust Company in Franklin, Indiana (Franklin). In 1984, the Corporation acquired all the outstanding capital stock of four Ohio banking institu-tions including The Tri County Bank in Coolville (Wi County) on January 1, The first National Bank of East Liverpool (East Liverpool) on April 1, The Union Savings & Rust Company of Warren (Warren) on May 1 and The Waverly State Bank (Waverly) on August 1. All appropriate financial statement, footnote and other information for the six 1986 and two 1987 affiliations accounted for as poolings of interests have been consolidated with BANC ONE CORPORA-TION for all periods presented. There were no material intercompany transactions prior to the affiliations. The table below provides further information on these transactions. Common Shares Name of Affiliate Following Banking Organization Issued Acquisition or Merger Indiana 21.035,328 BANC ONE INDIANA CORPORATION East Lansing 683,045 BANK ONE, EAST LANSING Sturgis 595,999 BANK ONE, STURGIS C Crawfordsville 1,02'5,521 BANK ONE, CRAWFORDSVILLE, NA Marion 484,000 BANK ONE, MARION, INDIANA, NA Merrillville 1,3%0,514 BANK ONE, MERRILLVILLE, NA Lafayette 1,427,576 ' BANK ONE, LAFAYETTE, NA ( Lexington 512,170 BANK ONE, LEXINCTON, NA The following table shows the effect of the two 1987 pooled entities on results of operations for the periods prior to the combination: Pooled 5(thousands) BANC ONE Affiliates Combined 1986 . Total revenue. $1,418,270 $429,152 $1,847,422 Net income 164,738 35,065 199,803 1985 Total revenue 1,335,303 396,381 1,731,684 Net income 138,364 38,460 176,824 1984 Total revenue 1,187,251 388,897 1,576,148 Net income 115,810 27,310 143,120 1 The results of operations of the acquisitions accounted for under the purchase method of accounting l (see table below) have been included in the consolidated statement of income since the date of l acquisition. The excess of cost over net assets acquired was $19,500,000 in 1986 and $3,900,000 in 1985. Pro forma consolidated results of operations with those affiliates included for periods prior to ~ affiliation for 1986,1985 and 1984 are not presented because of the immaterial impact. The following table and related footnote present other pertinent data for each acquisition (shares issued have been i 26

Q adjusted, where applicable, to reflect the impact of the August 6,1985 3-for-2 common stock split j and the February 7,198610% common stock dividend): Total Assigned Common Value of Shares Sharts issued Name of Affiliate Following Bank issued $(thousands) Acquisition or Merger Uhrichsville (a) (a) BANK ONE, DOVER, NA Carmel (a) (a) BANK ONE, CARMEL Elkhart (a) (a) BANK ONE, ELKHART Plainfield (a) (a) BANK ONE, PLAINFIELD, NA Bellaire 310,100 $ 5,800 BANK ONE, BELLAIRE, NA Franklin (a) (a) BANK ONE, FRANKLIN Waverly 314,701 4,900 BANK ONE, PORTSMOUTH, NA Warren 2,389,607 32,200 BANK ONE, EASTERN OHIO, NA f l East Liverpool 900,924 12,000 BANK ONE, EASTERN OHIO, NA Tri County 129,462 1,700 BANK ONE, ATHENS, NA j (a) Uhriebrville, Carmel, Elkhart, Plainfield and Franklin were acquired for cash of approximately $40 mi!! ion. f j p Note 3. Subsequent Affiliation: 1 On February 27,1987, the Corporation acquired all of the outstanding capital stock of The First National Bank in Fenton. Michigan (Fenton). A total of 257,235 common shares of the Corporation were issued in the transaction, which is to be accounted for as a purchase. At December 31,1986, { Fenton had total assets of $79,800,000 total deposits of $73,700,000 and shareholders' equity of l $5,300,000 and net income of $700,000 in 1986. Pro forma consolidated results including Fenton for 1986 and 1985 are not presented because of the immaterial impact. } [ Note 4. Pending Affiliations: e The Corporation has agreements pending for the acquisition of three Indiana banking entities, First National Corporation in Bloomington, Charter 17 Bancorp, Inc. in Richmond and Northwest Bank in Rensselaer. The agreements with the organizations provide for an exchange of common shares of the Corporation for all their outstanding shares. The number of shares to be issued generally is i 4 related to the average market price of the Corporation's stock. Based on the market price of the Corporation's stock at December 31,1986, it is anticipated that approximately 3,884,000 common shares will be issued. L Following is a summary of selected financial data for the unaffiliated entities as of and for the year p ended December 31,1986. The results listed do not reflect purchase accounting adjustments and are not necessarily indicative of future consolidated operations. The information is unaudited and is g. presented on a combined basis. $(thousands) Assets $651,600 i Deposits 519,300 Liabilities 590,600 Stockholders' equity 61,000 e. Net income 7,100 t( 27

~ ~ ~ M 7 7,.""'T;f-. s ^ ~ l Reserve for Possible Loan and Lease Losses: Note 5. Activity for 1986,1985 and 1984 in the reserve for possible loan and lease losses is summa the " Total Reserves" column on Page 40. Investment in Financing Leases: Note 6. The components of the net investment in direct nnancing leases as of December 31,1986 an are as follows: 1986 1985 $(thousands) $286,2b $412,226 Minimum lease payments receivable 55,641 39,076 Estimated residual values of leased property (97,073) (70,828) Less unearned income (6,823) (3,080) Less reserve for possible lease losses $363,971 $251,402 Net investment in 6nancing leases ~ The minimum lease payments receivable for each year 1987 through 1991 and the period thereafter are $142,748,000, $102,130,000, $75,725,000, $50,534,000, $26,978,000, and $14,111.000, g respectively. Note 7, Leases: At December 31,1986, the Corporation and its af61iates utilized certain bank premises and equip-ment under long-term leases expiring at various dates. In certain cases, these leases contain renewal options and generally provide that the Corporation and its af61iates will pay for insurance, taxes maintenance. Certain of these lease agreements have been capitalized under provisions of Statement of Financial Accounting Standards No.13 and are designated below as capital leases. As of December 31,1986, the future minimum lease payments by year under capital leases, together with the present value of the minimum lease payments and the future minimum rental payments required under noncancellable operating leases with initial terms in excess of one year, are as follows: Capital Operating Leases I nana $(thousands) War Ending December 31 $ 6,377 $18,181-r 1987 g 1988u. /1 Jy .4... . 3,506:

• , 14,602-198 d N. n,f' S 'l..; bMMC 'N

-N 2,184; 12,28&N ~" 6,513pf

• • 4 i W gr,84ht f@.(65,61W.

1,578 i .,J, &, k-6,037 i @ 39,25 % , t,%, es.:- yy l',52Tg $96,458# lbtal minimumlease pq w 3,IO9g [, e....., y,. Less amount representing.czecutory .p 'N Net minimum leassM--- $1W Less amount representing d et _ -4,727? p'g;, : $13,678 ' i Present value of capitalIcase obligations.+. 'J ; n 3.. 73,, w.. m -w...: ~ yt ^2 's >g4fWM*g-u 0;j$hm W:go y7 u w v. cgy s.,p" *' PM -.,. g;. ~ r% u 1 ' 'a 3. ? h5

• 65

'? 28 '@ c wkferF.s%$$M

mm3e.3 s 1 i Rental expense approximated $26,372,000 in 1986, $20,797,000 in 1985 and $22,920,000 in 1984. i Note 8. Short Term Borrowings: Information pertaining to the Corporation's short-term borrowings for 1986,1985 and 1984 is summarized below: I Demand Notes Federal Payable Commercial Funds Repurchase U.S. Treasury 8 $nhousands) Paper Purchased Agreements and Other t g 1986: Ending balance $158,382 $1,136,361 $ 687,164 $162,885 Highest month end balance 184,939 1,136,316 1,108,933 167,785 Average daily balance 134,762 796,482 771,186 131,547 Weighted average interest rate: As of year end 7.62 % 14.74 % 5.90 % 14.29 % Paid during year 6.62 % 6.78 % 6.00 % 6.56 % 1985: 1 Ending balance $ 68,531 $ 970,039 $ 777,113 $211,232 Highest month end balance 88.463 970,039 837,361 211,346 Average daily balance 76,072 464,051 770,775 112,444 Weighted average interest rate: As of year end 7.98 % 10.48 % 7.68 % 10.14 % Paid during year 8.17 % 8.01% 7.79 % 8.21 % i 1984: Ending balance $ 60,059 $ 543,007 $ 654,711 $118,428 l Highest month end balance 67,591 738,680 748,057 183,293 I Average daily balance 57,229 492,195 622,015 86,611 Weighted average interest rate: As of year end 8.36 % 8.83 % 8.05 % 8.78 % Paid during year 10.19 % 10.22 % 9.58 % 11.34 % { Federal funds purchased and securities sold under agreements to repurchase represent borrowings with maturities primarily from overnight to 7 days. In addition to providing for the short-term funding requirements of the Corporation's banking affiliates, these transactions also arise from the lead bank's market activities for correspondent banks. The Corporation's and crie affiliate's commercial paper is supported by multiple lines of credit with s unaffiliated banks renewable annually. These facilities total $180,000,000 and carry annual commit-ment fees of.21% to.25%. gG .i During 1986 the Corporation arranged a $nancing facility with a group oF eighteen major international banks. T!W MaisWok$ year nots issuance facility, i. permitting borrowings with one to sin niontkirme6ritissil~ is~on a competitive bid basis,g

4 Corporation's domestic commercial pThsg(appsihki supported by a $100 million daily backsplicilR ifato available to support the " d aisusDistierannum on the undrawn facility i

The facility is canceliable on ten days' ~ Ig-.#M:-(( multiples of $10,000,000. No - amounts were drawn down under the faci h $ &!::M V

• ?s.

.' %..at % @+. g%y.y l- !, .s. .y,

7 i 1 l 1 Note 9. Long Term Borrwings: Long-term borrowings as of December 31,1986 and 1985 included certain restrictions describe below and consisted of the following: 1986 1985 $(thousands) $ 50,000 $ 50,000 11%% Notes payable 50.684 50,709 Fixed rate Swiss franc bonds 15,000 16,500 9% notes payable 21,289 37,158 Other notes payable at 6.5% to 10% 8,452 10,159 Fixed rate investment notes industrial Revenue Bonds due through 7.415 6.700 December 1,1999 at 5%% to 10%% 13,678 12,166 Obligations under capital leases (Note 7) 3,216 4,605 Other $169,734 $187.997 In November 1982, the Corporation issued $50,000,000 of 11%% unsecured Notes payable due November 1,1992. The Notes are nonredeemable until November 1,1989, at which time the Corpo-ration, at its option, may redeem any or all of the Notes at their principal amount plus accrued interest. The Note Indenture limits the right of the Corporation to encumber the voting shares of its bank affiliates or dispose of more than 20% of the voting shares of banks individually representing 10% or more of consolidated assets. In 1985, an affiliate of the Corporation issued 110 million Swiss franc bonds (U.S. 550.5 million) that mature in 10 years. The fixed coupon rate of 5.5%, paid annually, has an effective rate of 11.21% because, concurrent with the issuance, the affiliate entered into a Swiss franc /U.S. dollar currency swap to hedge the Swiss franc liability and effectively convert the issue to U.S. dollar financing. The affiliate may redeem all, but not part, of the outstanding bonds at 102% from November 1990 to November 1991, after which time the bonds are redeemable at par. Under certain conditions, the affiliate may redeem all, but not part, of the outstanding bonds at 102.5% until November 1987 and at declining prices thereafter. The bond issuance agreement imposes limitations on the issuance of additional debt and requires the affiliate's defined stockholders' equity to be at least $150 million. The 9% Notes payable are required to be repaid at a rate of $1,500,000 per year with interest payable semi-annually. The Note Agreement currently allows prepayments with premiums as well as prepay-ments up to $1,500,000 annually without premium. The Note Agreement imposes limitations on the creation of funded debt, tiens, lease obligations, payment of cash dividends and acquisition of the Corporation's shares. The aggregate minimum annual retirements of long-term borrowings for each yvar 1987 through 000, $6,427,000 and $4,527,000. 1991 are $21,6,76,000; $5,899p w E h*- t. ~ 1Q:% #' @ J .N i 30

Note 10. Federal Income hes: The Corporation and its af61iates nie, subsequent to acquisition, a consolidated income tax return and income tax expense is apportioned among all companies based upon their taxable income or loss and tax credits. Deferred federal income tax expense results from timing differences in the recognition of revenue and expense for 6nancial reporting and tax purposes. The sources of these differences and the tax effect of each are as follows: 5(thousands) 1986 1985 1984 Change from accrual to cash basis accounting for tax purposes S 9,843 169 $ (5.921) Excess tax depreciation 50,956 34,114 27,111 Amortization of excess tax basis of purchased subsidiaries 1,003 1,170 1,598 Excess of book over tax loan loss provision (6,966) (6,2%) (10,021) Differences in book and tax income on nnancing leases, excluding depreciation (43,653) (25,049) (19,248) Prefunding health care benents 2,796 Recognition of income on hedged transactions (1,371) (875) 2,949 l h. Gain on sale of buildings, deferred in 1985 for l g 6nancial reporting purposes 805 (3,406) l4 Other (2,012) (794) 5.232 y Total deferred 11,401 (967) 1,700 Amount currently payable 11,599 19.705 26.150 Total provision for federal income taxes $23,000 $18.738 $27.850 The effective income tax rate is below the statutory rate due to the following: 1986 1985 1984 Statutory tax rate 46.0 % 46.0 % 46.0 % Reduction (increase) in tax rate resulting from: [ h exempt interest 35.1 31.2 27.7 Sale of acquired securities and mortgage loan portfolios with tax basis in excess of book basis 1.0 1.2 1.1 investment tax credit 1.1 3.7 1.5 Capital gain benent sale of buildings .2 1.0 Other (1.7) (.7) (.7) Actual tax rate 10.3 % 9.6% 16.4 % I l investment tax credits (lTC) are recorded as reductions of income tax expense in the year in which they arise and amounted to approximately $3,192,000 in 1986, $7,380,000 in 1985 and $4,233,000 in 1984. The 1986 credit resulted primarily from recognition of ITC for leases entered into in 1986 whereby the lessee agreed to reimburse BANC ONE for ITC lost because of subsequent tax law changes. .il 31

--ecesaw-, u" . ;,g g y n 4 Note 11. Dividend Restrictions (Also See Note 9): Payment of dividends by the bank af61iates is subject to various regulatory restrictions. I'or national bank af61iates and state banks in Ohio the governing regulatory agency must apprwe the decia-ration of any dividends generally in exces.s of the sum of pronts for that year and retained net pro 6ts for the preceding two years. The Michigan and Indiana state bank af6fiates are subject to such state laws permitting dividends to be declared from retained earnings so long as certain speci6ed capital requirements are met. At December 31,1986, total stockholders' equity of the banking affiliates approximated $1,183,107,000 of which $408,512,000 was available for the payment of dividends without approval by the applicable regulatory authority. Note 12. Banking Premises and Equipment: The major categories of banking premises and equipment and accumulated depreciation at December 31,1986 and 1985 are summarized as follows: 1986 1985 $(thousands) Land _ $~ 41,027 $ 41,420 Buildings (including $3,359 and $3,168 under capital leases ~ 144,087 135,595 at December 31,1986 and 1985) .y Equipment (including $19,418 and $16,583 under capital leaseso?. R ~ at December 31,1986 and 1985b 195,012-169,425-46,010 49,427. Leasehold improvements 426,136 395,867 Less accumulated depreciation and amortization (including $10,862 and $9,050 under capital leases at December 31,1986 and 1985) 161,002 137,825 $265,134 $258,042 Banking premises and equipment, net- .y-Note 13. Consolidated Quarterly Financial Data (unaudited): Selected quarterly financial data for 1986 and 1985 is presented below. The information is unaudited but does reflect all adjustments considered necessary for a fair presentation of the results of opera-tion for the interim periods All per common share amounts are based on average common shares 32

~ y 1 outstanding after giving effect to the August 6,1985 3-for-2 stock split and the February 7,1986 10% stock dividend: 5(thousands, except per share amounts) First Second Third Fourth 'Ibtal Quarters Ending in 1986: Total revenues $465,940 $466,890 $458,170 $456,422 $1,847,422 Net interest income 161,460 167,950 171,570 184,388 685,368 Net income 48,681 51,676 52,948 46,498 199,803 Per common share Net income .52 .55 .57 .49 2.13 Stock price High 30.75 33.13 28.63 25.63 Low 21.36 27.88 23.88 22.63 Quarters Ending in 1985: Total revenues 413,500 426,680 431,640 459,864 1,731,684 Net interest income 141,260 143,030 151,070 157,% 7 593,327 Net income 39,437 40,760 45,574 51,053 176,824 Per common share Net income .44 .45 .49 .55 1.93 Stock price High 18.34 20.68 21.36 25.34 Low 15.23 16.66 17.73 19.20 Note 14. Related Party Transactions: Certain of the Corporation's officers, directors and their affiliates are loan customers of the Corpora-tion's banking subsidiaries. The Securities and Exchange Commission (SEC) has determined that, with respect to the Corporation and five significant subsidiaries (as defined by the SEC), disclosure of borrowi.ngs by directors and executive officers and certain of their affiliated entities should be made. As of December 31,1986 and 1985, loans aggregating approximately $155,215,000 and $95,054,000, respectively were outstanding to such parties. Such amounts do not include loans to members ofimmediate families of persons who are solely directors and executive officers of the significant subsidiaries. During 1986 new loans aggregating $226,731,000 and amounts collected of $166.570,000 were transacted with such parties. Additionally, the Corporation and its subsidiaries incurred lease payments to directors' affiliates of approximately $1,296,000, $2,703,000 and $2,757,000 during 1986,1985 and 1984 respectively. In 1985, a BANC ONE affiliate sold three downtown office buildings to an affiliate of one of the Corporation's directors for $29,075,000. Note 15. Stock Split, Stock Dividend and Convertible Preferred: On January 21,1986 the Corporation declared a 10 percent common stock dividend to shareholders of record on February 7,1986. On July 23,1985 the Corporation declared a 3-for-2 common stock split, effective August 6,1985. Accordingly, all per common share data includes the effects of the stock split and dividend. The Preferred A shares are entitled to cumulative dividends at a rate of $5.50 per share, voting rights equal to those of the common shares into which they could have been converted, and have a liquidation value of $50 per share. The Preferred A shares, after giving effect to the common stock dividends and splits since issuance, are convertible into 3.2032 common shares. Preferred A shares, 33

r m 21 m, y. .h t vi y* y ,,a <.. w under certain circumstances, may be called at any time after July 1,1986 at $52.75 per share, w l,i~ y;, declining to $50.00 per share in 1993. Beginning June 30,1993 the Corporation must annually fundig redemption of 100,000 Preferred A shares at $50 per share plus accrued and unpaid dividends less. i previously converted or retired shares, until such shares are retired. As of December 31,1986,9,206 shares ($460.000) had been converted. Note 16. Commitments and Pledged Securities: As of December 31,1986, the affiliate banks had various commitments and contingent liabilities l arising in the normal course of business, such as standby letters of credit and commitments to extend credit, which are not reflected in the consolidated financial statements. In management's opinion, the*e commitments, including standby letters of credit approximating $461,000,000, repre-sent normal banking transactions and no material losses are anticipated to result therefrom. l The Corporation's lead bank has entered into several put option agreements whereby it agrees to l purchase certain tax exempt mortgage backed bonds that may be put by the bondholders on various dates through 2004, in exchange for a semi-annual fee paid by the bondholders. Bonds with a total par value of $228,500,000 are covered under these agreements, of which $66,195,000 have been i participated to other financial institutions. The agreements call for immediate remarketing of any [ bonds tendered to the bank by an investment banking firm. The bank has entered into several interest rate swap agreements to minimize its interest rate risk over the expected life of the j option bcudsc.r ey/%;w"#g{fE - " The Corp 6 ration's bank affiliates are required to maintain average balances with the Federal Reserve l Bank. The average required reserve balances were $207,781,000 and $181,016,000 for 1986 and 1985, respectively. y 7 ej., , y. As of December 31,1986, investment securities having a book value of $1,835,041,000 were pledged ~ to secure governmental and trust department deposits in accordance with federal and state require, ments and to secure repurchaseagreements sold.: ~. ,,..h .J MC&hW%%% $d Note 17. Stock Options {,, The Corporation hasiS approved by its shareholders on April 24, I and amended Decemilir,16;1986hielf provides incentive and non-incentive optiens to certain employees to purchase up to3',000,090' common shares of the Corporation. The oMions are nor y exercisable for at least one year from thddate of grant and are thereafter exerci<,able for such pe " as the Board of Directors, or a committee thereof; specify (which may not ene that theoptionee has remainesht theMof BANC ONE or its af'Jiatesn'[he paard atthac$ Committed may accelerats thFeatrciseprio#16stroption upon the optionee's disabilityretired 7 _? r ment or death. All options expire at theirWof the enercise period. No options were exercisable st% f December 301986r An obligation ta mellt future grants on 21,709 shares existe dif. + e- ~ .e '.1986. The Co'rporation makes no.recoduutibiiliithe financial statements until such options arah t , g 4 ga".4. % r 3. 7.; , p 4 4; ,+ s s . :+. ,M-%...q[~@:me,**Vs v f" ^ ' w i . n 9 h, - [. 1 1 m o. I i ,n-n w'; ~*t. ,[ @{' [# .[ h ' 14 . +. -

'I 3'. ^ W.4. *K,Wy- @ dy a,.. o O yG

• • #n.

{ -r .v t l exercised and no amounts applicable thereto are reflected in net income. All options were granted at 100% of fair market value. Activity in the Plan for 1986 and 1985 is summarized as follows: 1986 1985 Number of Number of 1 Shares Option Price Shares Optku Price j Outstanding at I beginning of year 218.864 $13.33-19.92 162,599 $13.3313.56 Granted 38,000 30.63 66,990 17.58-19.92 Cancelled (16.170) 13.51-17.58 (10,725) 13.56 Outstanding at end of year 240.694 13.33-30.63 218,864 13.33-19.92 Available for future grant 2,759.306 i s 0 i ..y The stockholders of American Fletcher Corporation approved stock option plans in 1973,1977,1980 ) and 1983. Giving effect to the exchange ratio (See Note 2), the 1973,1977 and 1980 plans each 'y authorized the granting of options to purchase 1,290,300 shares, and the 1983 plan authorized h@ options to be granted for the purchase of 860,200 shares. Options to purchase 369,684 BANC ONE common shares were substituted for the outstanding options not exercised at January 26,1987. Activity in the plans for 1986,1985 and 1984 is summarized below: I 1988 1985 1984 ~ Number of Number of Number of '} Shares Option Price. Shares Option Price Shares Option Price k;$ Outstanding at I beginning of year 956,026 $3.23-12.99-1,314,600- $3.23-4.74 1,818,032 $3.06-4.74 Granted 401,068 12.99 (*; Exercised 427,582 3.23-12.99 759,642 3.23-4.33 503,432 3.06-4.74 i 4-Outstanding at end of year g,f (all exercisable) 528,444 3.23-12.99: 956,026 3.23-12.99 1,314,600 3.23-4.74 . 3 ; '..,.'2(},d Available for future grant 437,035 g y R,. g. Le ~_ hi 1983 SPARTAN BANKCORP' established an employee stock option plarr under which stock options-were granted at 100% of fair marketvalue at the date of grant. The plan was terminated January 2, 3 v:., ' .,N * -Q % ~f $,%Yb - .u,'qh. v.p xy':- ? 'i A , -..e. D ,c 1 MW 35

1 i i 1987. Transactions for 1986,1985 and 1984 were as follows after giving effect to the exchange ratio (See Note 2). 1986 1985 1984 LMer of Number of Number of Shares Option Price Shares Option Price Shares Option Price 1 ) Outstanding at I beginning of year 32,563 $7.6714.92 26,533 $7.67-10.57 13,266 $7.67 Granted 13,267 14.92 13,267 10.57 Exercised 6,030 7.67 7.237 7.67 Outstanding at j end of year 26.533 7.67-14.92 32,563 7.67-14.92 26,533 7.67 10.57 Available for j future grant 32.563 [ l ) Note 18. Industry Segment Reporting: The Corporation and its subsidiaries operate principally in a single business segment offering i I general commercial banking services. 1 l l Report of Independent Accountants i To the Stockholders and the Board of Directors, BANC ONE CORPORATION j i We have examined the consolidated balance sheets of BANC ONE CORPORATION and Subsidiaries and the balance sheets of BANC ONE CORPORATION (Parent Company Only) as of December 31, 1986 and 1985 and the related statements of income, changes in common stockholders' equity and changes in financial position for each of the years in the three year period ended December 31,1986. j Our examinations were made in accordance with generally accepted auditing standards and, accord. ingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the financial statements referred to above present fairly the consolidated financial j position of BANC ONE CORPORATION and Subsidiaries and the individual financial position of BANC ONE CORPORATION (Parent Company Only) at December 31,1986 and 1985 and the results i of operations and changes in finar.:ial position for each of the years in the three year period ended De,cember 31,1986 in conformity with generally accepted accounting principles applied on a consis. I tent basis. j p 1. 1 C00PE.RS & LYBRAND l l Columbus, Ohio i February 27,1987 36

~.. BANC ONE CORPORATION and Subsidiaries mm, 'Ib har Financial History J (unaudited) 1 s. wtal Leems Earated Wre Common Primary har Asasts DeposRs and I eases Assets Daht EquNy Capetal Year End 1986 s17,371.9 513 3 70.7 s11,549.1 sl5,215.7 s169.7 51,250.6 s1,407.2 Balances 1985 16.474.5 12.408.9 10.061.7 14.134 3 188.0 1,113.7 1,242.6 stmdhons 1934 14,027 3 11,106.9 8,730.1 12,098.8 133.5 911.5 1.018.1 1983 11.979.6 9,447.2 6,800.9 10.474.6 134.1 771.9 852.8 1982 9.2833 6,986.8 4.873.6 8,000.4 95.2 629.1 684.1 1981 7,741.5 5.809 3 4,130 3 6.516.1 48.5 500.6 547.2 1980 6,558.1 5,007.6 3.573.4 5,451 3 48.8 440.1 482.2 1979 6.297.5 4.800.9 3.14 5.6 5.374.2 75.1 402.8 441.9 1978 5,649.6 4306.9 3,071.6 4.8273 83.3 3t,2.8 396 0 1977 5,108.7 3.979.8 2,720.7 4,327.9 87.8 327 3 354 6 l 1976 4.825.3 3J02.2 2.403.7 4.169 3 81.6 300.6 334.8 10 Year Compound Crowth 13.67 % 13J0% 16.99 % 13.82 % 7.60 % 1532% 15.44 % 'E B Intest Other heal latsvest Other Net Securities har laconne laceme laceae Espense Expense Income Trananctions Income 1986 si.571.4 s276.0 s1.847.4 5886.0 5608.5 s199.8 s185 3 and 1985 1.495.8 2353 IJ31.7 902.5 5213 17E8 1733 1984 1,383.9 102.2 1,576.1 869.7 453.1 143.1 142.0 Expenses 1983 1,042.6 1473 1,189.9 670.3 365.1 110.8 111.9 1982 975.1 101.0 1,076.1 666.1 295.2 81.6 86 3 1981 806.7 83.7 890.4 5673 234.9 61.9 63.0 1980 626.0 68.9 694.9 408.0 199.9 61.0 61.2 1979 522.5 55.6 578.1 305.5 181 3 58.0 58.2 1978 413.0 48.4 461.4 219.9 157.2 52.1 51.6 1977 341.6 42.8 384.4 172.1 145.3 43.1 42.4 l 1976 307.8 44.4 352.2 159.4 140.2 34.4 32.7 I 10 Year Compwnd Crowth 17.71 % 20.05 % 18.03 % 18.71 % 15.81 % 19.24 % 18.94 % Asurage Ending Neo-Emelsyses Reta,rn ce Retare en h-Primary Net laterest (FTE) per Average Commen Eguty to Capital te letsvest laceme to $1 Million har Assets Equity Anasts Assets Marsta Espesas of Assets Key 1986 1.23 % 16.49 % 7.23 % 8.03 % 5.73 % 4536% J3% Performa 1985 1.23 16.84 7.07 7.48 5.70 45.20 J5 1984 1.13 16.15 6.75 7.20 5.50 42.42 .82 l ance 1983 1.07 15.57 6.69d 7.07 4.95 4035 .86 Ratios 1982 .96 13.92 6.8n 733 4.99 34.21 .91 l 1981 .89 13.29 6.71 7.03 4.92 35.63 .96 1980 .97 1434 6.78 731 4.97 34.47 1.02 1979 1.01 15.11 6.66 6.97 5.18 30.67 1.06 1978 1.00 15.02 6.63 6.97 5.10 30.79 1.14 1977 89 13.75 6.50 6.90 4.88 29.46 1.18 10 Year Average 1.04 % 15.05 % 6.79 % 7.23 % 5.19 % 36.85 % .94% d Net income Div Stedr Beek Outstanding h Per and Price Wlue har t000) Pbeind Historte Share Splits %ar End War End Common 1986 91,125 s2.13 s 2.13 s.82 10 % s22.88 sl3J4 SOg 1985 88.779 1.93 2.01 .70 3:2 23.41 12.28 1984 84.812 1.62 1.74 .59 10 % 15.53 10.54 Data 1983 77,124 1.40 1.55 .52 3:2 14.19 9.45 1982 68.790 1.19 133 .44 3:2/10 % 14.15 8.73 1981 57.005 1.09 1.21 .40 8.68 8.19 1980 56.255 1.08 1.05 37 10 % 7.24 7.82 1979 56.029 1.04 .95 .33 5.56 7.18 1978 55.972 .93 .82 38 10 % 531 6.48 1977 55.693 37 31 25 5.56 5.88 1976 55.639 .62 .62 .22 10 % 4J4 5.40 10 Year Compound Crowth 13.19 % 13.19 % 14.06 % 9.79% 37

?h h W W &' f $&g ., a ~ Five Year Summary-Ameraga Balances, IncounEand Expense,

• ~

-Yields and Rates (*5 . 4.><g w., ~ d-4 (unaudited)

W-J 1986 k.

1986 N Auerage income / Yisi4 Mbt'% Aserags.. Incesse# Yleie._ [' $(thousands) Balance Expense Itahrt ' % Balmagg IT Pwpannaa Rate-mummmus' mammme Assets: Securities i Taxable 3 1,608,546 $ 141,1751 8.78 % $~ I,405,617" $ ' 145,848" 10.38 % ~ Tax exempt 1,568,267 216,304 13.79: 1,130,942 168,779' 14.92 1 Total securities 3,176,813 357,479 11.25, 2,536,559 314,627 12.40 1,oans and leases: Commercial 4,098,712 396,991 9.69 3,377,599 375,205 11.11 Real estate 1,836,876 195,165 10,62-1,844,991 204,749 11.10 Installment 2,333,733 298,742 12.80 2,025,256 281,708 13.91 Credit card *> 1,244,922 255,237 20.59 1,016,881 224,909 22.12 Tax exempt 843,693 116,513 13.81 648,680 100,685 15.52 1 eases, net 295,127 40,189 13.62 216,556 29,347 13.55 (Valuation reserve) (138,073) (110.824) Net loans and leases 10.514,990 1,302,837 12.3$ - 9,019,139 1,216,603 13.49 Money market instruments: N, interest bearing deposits 507,512 36,754

• 7.24L..

, 681,231 59,168 8.69 Fed funds and repos 283,072 19,326/ ; 6.83W d 396,499 31.9 % 8.07 Total money market instruments 790.584 56,080; [7 % _'1,077,730 91,166 8.46 htal earning assets 14,482,387 1,716,3964, 11.8gf J2,633,428- - 1,622,3 % 12.84 4, ,y a 1,751,753-i Other assets 1,816,203' htal assets $16,298,590 7, '. /. d5 % $14,385.18F 5 y. ~my ~ Liabilities: %..= MW '.:f T*k N.E~~' W f Deposits: Demand: E.$ g @;Mk D.# 2%g b .,: j 2,077,422% Non-interest bearing $ 2,266,473u .a Interest bearing 1,261,047. 62,244$M.4.

g1,009,493-4 56,025 5.55 Savings

.g ~.% [. pst. 4 $e* 4 Regular savings 1,072,770E 56,287Y ~,5~.2 @ g 1,074,365-57,385 5.34 e Money market savings 2,257.193P _ 131 % ;Qg%.j, G,626,792-116,963 7.19 5. .:. ~vy

• Time deposits:

~. W< Money market CD's 3,390,181J 3006143 " CD's-$100,000 and over: ' 8,88g 9 3,239,546 " - 323,505 9.99 f. Dornestic 1,428,097-111.06L; '7.71'th },409,965-130,636 9.27 {W672,4466 Foreign 291,825-23.036 s 4 7.8 %f / 252,168c 22,406-8.89 Other time depositss 712,483i >" 63,1984 d ~ j!!,362,3m( f 67,029 9.97 J - E M"g g,9 ,g,680,000hs 747,917d k.'5. ' ?a %,. btal deposits - g 773,949 : 6.8L. & 12 f Borrwed funds: m.. R.- X+. 4 & tpgg 3 ) " 118,9 f J,4133425 M.113,411A . 7.97 -, f I,833,97Ec,,, 19,13pJ 1ei [ r.137,'!G37 W 15,116i 11.03F Short term 'x Long-term N , & 178,974sd ,.c Total borrowed funds ' N b' 2.012,95 6 ' 138,105@ [6' i @ l,560,445 - 5' 128,527" 8.24 htalinterest bearing!!abHMkh 112,429,54 I : 886,015 5 [' 1984Sg40A Q 902,476s 8.32 Other liabilities. ' 377,322F pit * .b',399,07% %Q ".g.. ' - ' " N A 15.070,342'

1. a 4013,317,733 0 KC Totalliabilit ~ M frI?- 50,174,PA'O Preferred st

. 49,999W.A Common stockholders' equity 1 1,178,255~ AM triCil317,274MJ E. giM.S.Nb7 " [ i. e .f.C htaillabilittedcommoer

• adra'" Q $ Ma si6,2.e,5eeg 3

ye = Netintenst k;.%$C g @ ( y [

71g, 0.G*

e Provision for loan i ~ g 4;* W, (138, M % y -(111,770)# 9.88)u y and lease losses I i I5" 608,15&f Net funds function. I- $. 700 Q 4.82W ,; g _ $l7IT.h Ai ' @hTg %.. "' Fully taxable equivalent basis See defuwtion in Managements fra g.,*;((,.y.,, [V.

• 'Pnor periods restated to reflect reclassification o(certain fees to other i p-T y'. YQ. % g*,:N,

S,.kehp3' g@w ~ .c? jg, ,; g 5. f,. m ', 38 . i.:

f y ~ ~e, sy n R ;. %.. W.v.s @.s .i, h

• he 7 '. Nij%'c E.

t - # *C

• ,, 0 ' *[ O f 2',

.4 '.'..

~q ? ,in y Y d's A ,. 9.,.; 1964-1933 198Ek 4- " '. '^7 Growth 1981 1986. I I Average Inconie/ yield / W locomis/ yield / herman w :? ylsig M hsurage Incomet i Balance Expense Rate hhw. Expense Rate Balance Esponeer.C Ratsf hk-. Expense mamme -- nummme unmuurammmme muumme. nummmes

1. h.12%

20.59 % 16.09 % i 5 1202,375 $ 129,718 1039% $ 957,751 $ 1012% 10.58 % $' 720,131 $ 87,2920 1 841,146 122.083 14.51 701291 95309 13.59 614.685 79.892 13.00~ 17.87 22.18 2,043,521 251,801 1232 1,659.042 196,605 11.85 1,334,816 167,184 12.52 1920 19.55 l 3,029.600 385J42 1233 2.263.124 268.134 11.85 1.850,692 275,502 14.89 23.06 8.52 1,823.094 209J85 11.51 1.616,316 180.538 11.17 1,323,970 150.991 11.40 930 9.40 i 1,616,610 242,432 15.00 1.139.759 173,10a 15.19 863,056 137,418 15.92 24.08 19.86 657,396 142,661 21J0 331,525 71.86 21.66 239,858 50,806 21.18 4635 48.16 8 459.556 76,073 16.55 327,513 48.471 14.80 249,626 40,416 16.19 3720 30.71 180,557 25.153 13.93 143,615 20,553 1431 120,529 18,404 15.27 2235 2131 193.210) (68.984) (54.138) 27.71 g 7,673.603 1,081,846 14.10 5J52,868 762,611 1326 4,593.293 673,537 14.66 22.41 17.14 1,036,949 112,080 10.81 1,323,466 130398 9.85 1,063,539 151,210 14 22 2.00 (13J8) I 289.265 31321 10.83 293.284 27,420 935 345,094 40,186 11.64 1.26 (1439) le 1.326.214 143,401 10.81 1,616,750 157,818 9J6 1,408.633 191,3 % 13.59 1.73 (13.99) l 7. 11,043,338 1,477,043 1338 9,028,660 1,117,034 1237 7,336,742 1,032,117 14.07 19f9 14.92 ) W l.585.661 1.297,639 1.197,79&. 1134

1. i 512.628.999

$10,326.299 $8.534.540 18h5 W e$ t 1y $ 1,877,888 $ 1.617,185 $1,407,966, t 11.20 j '.c 867,375 52.808 6.09 683,193-j, 41,322-6.05; , 351,921 t,. 17,866-,. 5.08 38.93 38.72 ]>

m. -.

1.045,694 55.216 5.28 964,466.' 49,346 5.12 . 907,732 46.129. . 5.08 = 6.84 737 1.302,573 112,392 8.63 1,037,403: 84,597' 8.15. f.10,550 1,03!f :,.,9.771 2J91.432 295,569 10.59 2,220,552-224,603 10.11. 'i,959,163 " 248,304, 12.67. 19.05 10.17 1,235.643 130,491 10.56 895.911-88,103 9.83-. 777,258 95,775 1232 17.02 2.65 k 244304 24,683 10.10x 183,045Q J.'. 16,122: 8.81 5 258,936.1 H 33,568n., 12.96 (.46) (13.53) 592.424 56,340 9.517 9.957,333 727,499 73 ' ' 576,312,- M 60,696.l ' 10.53F..V 680,315E ?e 72,338) 10.63 % 8.254 .8.48 ~ ~ ^ ^ 564791N I 6.91 5 - 66353,84E % 515,011 5 $8:1h ,19'5C 12.04-

G t%.

V.'* h&.?$R v.+.R :$ % ' '.W 1,258.050 126,791 10.006-l 9.11.% y1,215,48k A 145,27th 11.95F ' 14.2%.; (4.11) 135.920 15384 11334 1M _, 13,941'. ~ 11.179.w.0 53,5007 % 5.8315 10.90J 28.93'? - 31.45 1393.970 142.175 10.2k6 d I29 $ @ 105',465

93h ; 1,268,989jr H" 15h108d (Ill.91[i 15.22'.

(1.85) 9,473,415 869,674 9.18 6 '"" 696'11$ " 670,256 ^ 8.72R ._6,214.8 3 ; 2 :.666,117s 10.72; 20.69 ' , 9.02 't'325.5r5,f :.t. 3.. ~ 6.05? 375.541 i '296.53% "1'~ _'L-c- 11J26.844 L. 9,605,836L 7,948,35E ".1 18.44-g --{ }M.G.J 'Mh "k,.I.~ 49,843 .. f.29,7400 hN$ 852,312 g, ..t 691,2)( < q{ cr 3':;., g g --. f 585,lF,' fpq Q 34] 3 20.41 .A A..m~ *p^ mop w paF .id-h $12.628,999 $19 Y[ @ 'T!'If FY - 1.,, * , I.AN.s..c. l'f4". )'18,659e F',% 1 e .'.9.- '2420 507,374e 5.56 i *SE - . 77 f,.4.95 2v ' y t Ny'G.I-W;;y,;.ps $,a. .m y 4. e. M T ~ z (82,386) (J5) 1' D (44,27I);.t (.49$ k., .kd'6 (33,530p _146P Q@ P 48.44 $ 524.988 435% $ 402,507e ' 4.46% M*S..W;i J 332:46tD 4.53%. 21.64 % .s.s m&O.,h,Y. w.- k h5h a .? ~n. 3 T ,p, h N .e x 39 Od

j { l BANC ONE CORPORATION rnd Subsidi~ ries Loan and Lease Reserves (unaudited) Commer-

cial, Real I

and Agri-Con-

Estate, Con.

Credit nz L'nallo-Total f Financial

Estate, Real

$(thousands) cultural struction m rtgate sumer Card Exempt Leases cated Reserves l _se=======s======== ,========= l J

Balance, December 31,1981 3 20,148

$ 3,671 $ 2,881 $ 12,210 $ 3.209 $ 1,002 5 3,500 $ 46,621 Reserves of banks purchased 1,700 60 200 1.300 500 700 4.460 Provision,1982 19,772 901 1,297 6,770 3,088 2,011 (300) 33,539 Gross losses (19,411) (714) (923) (14,476) (3,490) (1,565) (40,579) ( Recoveries 2,074 22 45 7,086 916 791 10,934 Net losses (17,337) (692) (878) (7.390) (2,574) (774) (29,645) { December 31,1982 24,283 3,940 3,500 12,890 4,223 2,239 3,900 54,975 , l

Balance, t

i purchased 7,500 400 1,300 2,781 2,300 411 2,000 16,692 Reserves of banks Reserves of bank sold (45) (50) (100) (3) (198) Provision,1983 24,299 281 1,150 11.343 4,859 500 1,750 89 44,271 Gross losses (22.830) (1,167) (1,990) (17,897) (4,717) (2,918) (51,519) Recoveries 5,709 36 440 8,657 1,063 736 16,641 (34.878) Net losses (17.121) (1,131) (1,550) (9.240) (3,654) (2,182) December 31,1983 38,916 3,490 4,350 17,674 7,728 500 2,215 5,989 80,862 I

Balance, Reserves of banks 2,848 l

purchased 1,000 500 1,048 300 (284) Reserves of bank sold (284) Provision,1984 37,934 (157) 514 10,151 29.842 334 3.768 82,386 l Gross losses (39,185) (706) (2,255) (19.195) (18,609) (15) (1,913) (81.878) i Recoveries 6.889 631 1,508 9,827 2,500 1,312 22,567 ] Net losses (32,296) (75) (747) (9.368) (16.109) (15) (601) (59.211) i

Balance, December 31,1984 45,270 3,258 4,617 19,505 21,761 485 1,948 9.757 106,601 Reserves of bank 3.827 purchased 710 46 9

24 3,038 Provision,1985 28,115 1,791 (1,695) 15,147 62,644 500 4,794 474 111,770 Gross losses (34,682) (237) (2,143) (26,764) (51,173) (273) (4,731) (120,003) 1 Recoveries 8,898 405 1,999 10,835 3,494 1,069 26.700 Net losses (25,784) 168 (144) (15,929) (47,679) (273) (3 fQ (93,303)

Balance, December 31,1985 48,311 5,263 2,787 18,747 39,764 712 3,080 10,231 128,895 Reserves of banks purchased 338 254 229 507 26 2,708 359 4,421 Pmvision,1986 15,983 1,066 (810) 30,970 76,099 (476) 3,305 3,926 130,063 Gross lanes (27,879)

(122) (2,493) (37,822) (71,878) (4,158) (144,352) Recoveries 12,851 265 2.513 13,657 6,469 1,888 37,643 Net losses (15.028) 143 20 (24,165) (65,409) (2,270) (106,709)

Balance, December 31,1986

$ 49,604 $ 6,726 $ 2,226 $ 26.059 $ 50,480 $ 236 $ 6,823 $14,516 $156,670 40

ww 3 SANC O_NE CORPORATION nnd Subsidk^' ries 1488 &Rd Le&St NN (unaudited) i 5(thousands) 1986 1985 1984 1983 1982 Ending loan and lease balances: Commercial,6nancial and agricultural $ 4,543,037 $ 3,647.608 $3,252,063 $2.659.694 $1,944.538 Real estate, construction 497,421 308.204 250.378 156.205 127,825 Real estate, mortgage 1,389,199 1.581,067 1.650,869 1.582.166 1.283.305 Installment 2,564,569 2,097.460 1,746,577 1,353.932 851,538 Credit card 1,375,817 1.364,535 1,044,438 481355 291,016 Tax exempt 808,236 808 3 56 578,056 404.212 248.367 Leases, net 370.793 254,482 207.729 163.354 127.052 Totalloans and leases 11.549,072 10,061.712 8,730.110 6.800.918 4.873.641 Non. performing assets and delinquencies: i i Non-accrual loans 149,586 113,770 124.312 106,862 78.038 Renegotiated loans 9,771 8,003 14,361 7,223 9.466 Other real estate owned 19,685 19.992 22,953 19.979 25.544 Total non-performing assets 179,042 141,765 161,626 134.064 113,048 Loans delinquent over 90 days (not included in non-accrual) 65.373 65,325 50.753 51,123 36,490 Loans classi6ed as doubtful 47,578 34,431 42.299 37,209 11,925 income foregone on non. performing loans (after tax) 6,114 5 4,9% 5,798 5,322 5,201 Reserve and loss ratios: Ending reserve to ending balances: Commercial 1.09 % 132% 139% 1.46 % 1.25 % Real estate, construction 1.35 1.71 130 2.23 3.08 Real estate, mortgage .16 .18 .28 .27 .27 Installment 1.02 .89 1.12 131 1.51 Credit card 3.67 2.91 2.08 1.61 1.45 Tax exempt .03 .09 .08 .12 Leases, net 1.86 1.21 .94 136 1.76 Total loans and leases 1.36 1.28 1.22 1.19 1.13 Net chargeoffs to average balances: Commercial .37 .76 1.07 .76 .94 j Real estate construction (.04) (.06) .04 .77 .63 Real estate, mortgage .01 .04 .10 .07 Installment 1.04 .79 .58 .81 .86 Credit card 5.25 4.69 2.45 1.10 1.07 Thx exempt .04 Leases, net .77 1.69-33 1.52 .64 Totalloans and itases 1.00 1.02 .76 .60 .64 Recoveries to gross chargeoffs 26.08 22.25 27.65 3230 26.94 To ending loans and leases: Non-performing assets 1.55 1.41 1.85 1.97 232 Loans 90 or more days delinquent .57% .65% .58% .75% .75% Earnings coverage of loan and lease losses 3.31x 3.29x 4.28x 5.70x 5.00x l I l l l l l l 41

nor..w.mp BANC ONE CORPORATION $ukidi rieer T*- 1986 ConsoHdating Statements (unaudited) BANC ONE i Parent Co., i BANK ONE, BANK ONE. All Other Non-Bank BANC ONE COLUMBUS, INDIANAPOLIS, Bank Subskliaries CORPORATION NA NA V6tiates & Eliminations Consolidated Sithousands) summmmmmmmmmmme summmmmmmmmes a Balance Sheet, December 31,1986 Assets: Cash and due from banks $ 357.831 $ 359,080 $ 664,342 l $(138,382) $ 1.242.871 Securities 436.087 504.181 2,241,087 9,385 3.190.740 Money market investments 30.619 439.117 153,989 8,819 632,544 Loans and leases 2,072,041 2.tiO6.838 6,615,269 254,924 11,549,072 Less, Reserve for loan and lease losses 29.191 33.061 87,032 7,386 156.670 Net loans and leases 2,042.850 2,573,777 6,528.237 247,538 11,392.402 Bank premises and equipment 67.343 46.250 140,552 10,989 265,134 135.851 169.213 99,753 243.396 648.213 Other assets Total assets $3,070,581 $4,091,618 $9,827,960 $ 381,745 $17,371,904 Liabilities: l Deposits: l Demand $ 755.325 $1.011.860 $2.739,595 $(150,480) $ 4,356,300 72,699 748.565 253.217 1,074,481 Savings Other time 1,399.026 1,029,713 5,517,831 (6.684) 7.939.886 Total deposits 2.227,050 2,790,138 8.510.643 (157,164) 13.370,667 Borrowed funds: Short-term 571,526 957,645 471,494 144.082 2,144,747 Long-tcrm 8,822 4.275 19,690 136.947 169,734 Total borrowed funds 580,348 %1,920 491,184 281,029 2.314.481 s Other liabilities 75,820 127.592 127,558 _ 55.806 386,776 Total liabilities 2,883,218 3,879,650 9,129,385 179,671 16,071,924 lbtal equity 187,363 211,968 693,575 202,074 1,299,980 Tt.tal liabilities and equity $3,070.581 $4,091,618 $9,827,960 $ 381,745 $17,371,904 Ir come Statement for the Year 1986 Income on earning usets: Securities $ 40,382 5 37,123 $ 185,879 $ 1,111 $ 264.495 Money market mvestments 15.203 25,566 15,076 236 56,081 Loans and leases 233.290 247,362 726.209 43.946 1.250,807 Total earning asset income 238,675 310,051 927,164 45,293 1,571,383 Interest expense: Interest on deposits 142.890 148,001' 463,025 (6,005) 747,911 l Interest on borrowed funds 39,46L - 43,518 28.239 26.886 138.104 l Tot:1 interest expense 182,351-191.519 491,264 20,881 886,015 - l Net interest income T.t" 106,524A 118,532' 435,900 24,412 685,36& % Provision for loan and 27.626 66.1 % 6.241 1 3.063 lease losses 30,000 Yi .n 76,524. 90,906 369,704 18,171 555,305 Net funds function 102,101 45,580 117.079 11,279 276,039' Other income Other expenses 128,623 112,159 322,520 45,239 608,541 N2t income before provision fo'7 r l federal income taxes f.~ 50,002-24,327 164,263' (15,789) 222,803 - l Federal income taxes (bene 6th ~ 9,060 (5.359) e 22,848, (3,549) 23,000c - Net income 40,942} $ 29,686 $ 141,415. $ (12,240) $.19tMg e s g,- 4 = 42 _.___________m_

(2ANC ONE CORPORATION cod Subsidirnes Rate-Voluma Analysis'*" (unaudited) 1986-85 1985 44 Change la Change la locome/ Raee Whm Incomel Race - Wlume $(thousands) Expense Effect Effect Expense Effect Effect w Assets Securities: Taxable $ (4,673) $ (73,621) $ 68,948 $ 16,130 $ (4,714) $ 20,844 Tax (xempt 47,525 (11,587) 59,112 46.696 3.538 43,158 Total securities 42,852 (85,208) 128,060 62,826 (1,176) 64,002 Loans and leases: Commercial 21,786 (32,672) 54,458 (10,537) (106,089) 95,552 Real estate (9,584) (8,687) (897) (5,036) (7,601) 2,565 Installment 17,034 418.700) 35.734 39,276 (15,781) 55,057 Credit card 30,328 (14,647) 44,975 82,248 2.790 79,458 Tax exempt 15,828 (9,169) 24,997 24,612 (4,394) 29,006 Leases, net 10,b42 143 10,699 4,194 (663) 4,857 Net loans and leases 86,234 (83,732) 169,966 134,757 (131,738) 266,495 Money market instruments (35,086) (13.238) (21,848) (52.235) (28,072) (24,163) Total earning assets 94,000 (182,178) 276,178 145.348 (160,986) 306,334 Interest bearing liabilities: Demand interest bearing 6,219 f4,965) 11.184 3,217 (3,773) 6,990 Savings: Regular savings (1,098) (1,013) (85) 2,169 643 1,526 Money market savings 14,993 (26,096) 41,05B 4,571 (9,275) 13,846 Time deposits: Money market CD's (23,362) (39,590) 16.228 27,936 (15,332) 43,268 CD's-5100,000 and over: Domestic (19,575) (21,277) 1,702 145 (%6) 1,111 Foreign 624 (1,536) 2,160 (2,277) (3,106) 829 Other time deposits (3,838) (8.346) 4,508 10,689 2,809 7,880 Total deposits (26,037) (102,823) 76,786 46,450 (29,000) 75,450 i Borrowed Funds: Short-term 5,505 (10,025) 15.530 (13,380) (35,914) 22,534 Long term 4.071 (405) 4.47_8 (268) (404) 136 Total borrowed funds 9.576 (10,430) 20,006 (13,648) (36,318) 22,670 Totalinterest bearing liabilities (16,461) (113,253) 96,792 32,802 (65.318) 98,120 Net inteitst income $ 110,461 5 (68,925) $179,386 $ 112.546 $ (95,668) $ 208,214 l

• Fully taxable equivalent basis. See de6nition in Managements Discussion and Analysis.
• The unallocated portion of the total change has been pro-rated into rate and volume components.

l l l l l l i t 1 l b ,4-, ,=#. j g

• ' ~

~ 's k gf re, i L l i I 43 l

ww z mmy,r v n3 _ 7:, dANC ONE CORPORATION rrxf Subsidiaries Management's Discussi n and Analysis j introduction Management's discussion and analysis of BANC ONE CORPORATION's results of operations include six 1986 and two January 1987 afnliations accounted for as poolings of interests. All appropriate 6nancial data have been restated as though the companies had been combined for the periods preser.;ed. Three other 1986 af6liations were accounted for as purchases, the results of which are included from their respective af611ation dates. These af611ations are described in greater detail in Note 2 of the Notes to Financial Statements. Included in this review are the following sections:

1. Overview IV. Asset Quality II. Net Interest income V. Liquidity and Interest Rate Sensitivity III. Other Income, Other Expense VI. Capital and Federal Income Taxes VII. Other This discussion should be read in conjunction with the nnancial statements, notes and tables presented elsewhere in this report. Terms used in this report include:

Average balances: All average balances are calculated on the basis of daily averages. Interim period annualizations are based on the actual days in the relevant period. Fully taxable equivalent basis (FTE): Income on earning assets which is subject to either a re@ced ^ rate or zero rate of federal income tax, adjusted to give effect to the incremental corporate federal income tax rate of 46E Where indicated, yield calculations reflect these adjustments. Net interest income: Interest and related fee income on earning assets (FTE basis where noted), reduced by total interest expense on interest bearing liabilities. Net interest margin: Net interest income divided by average earning assets. Net funds function: Net interest income reduced by the provision for loan and lease losses. Primary capital: Common stockholders' equity and the reserve for loan and lease losses. I. Overview of Results. Net income was $199.8 million for 1986, an increase of $23 million over the $176.8 million recorded in 1985, which included a $9.3 million after tax gain on the sale of the downtown office < buildings of BANK ONE, INDIANAPOLIS. Excluding this one-time 1985 gain, net income per com-mon share increased 17.0% to $2.13 in 1986. In addition, nonrecurring merger related expenses, totalling $3.1 million net of tax, were recorded in the fourth quarter of 1986. Details of the changes in net income per common share are presented in Table 1. Fully diluted earnings per share are not-presented because pro forma conversion of the Series A Preferred stock would reduce 1986,1985 ands 1984 earnings per share by less than 1A 4 r* .t The key measures of the Corporation's profitability and financial strength continued to rise in 1986[,. Without the nonrecurring gain in 1985, return on average assets increased from 1.16% to 1.23% in? 1986 and return on common equity grew from 15.93% to 16.49% in 1986. Ending primary capital ' rose to 8.03% at December 31,1986 from 7.48% one year earlier. Driving the 1986 earnings performance were significant gains in average loan balances, notably credit card and commercial loans. Other major contributors were tax exempt loans and securities, the second and third highest yielding assets in the portfolio. This growth was funded primarily by core deposits which steadied the Corporation's dependence on large liabilities and enabled the net interest margin to increase slightly. j 44

m i, Of6 hbleI Analysis of Changes in Net Income Per Common Share 1965 86 1984-85'd Net income per common share $1.93 $162 Increase /(decrease) from changes in: Earning asset volume 1.00 .75 Net interest margin .04 .19 Provision for loan and lease losses (.21) (.35) Other income .45 .51 Other expense (.97) (.81) Provision for federal income taxes (.05) .11 Subtotal 2.19 2.02 Change in werage common shares (.06) (.09) Net income per common share $2.13 $1.93

• Per common share figures are restated to reflect 10% stock dividend effective February 7.1986 II. Net Interest Income Securities and Money Market Imestments j

The combined affiliate bank investment portfolios fulfill a dual role for the Corporation. It is the primary tool used in adjusting the entire Corporation balance sheet for expected changes in interest rates. Because loan and deposit portfolios are independently dynamic, maturities of the assets and liabilities are often mismatched. If left unmanaged, they could subject the earnings stream of the Corporation to random changes in market interest rates. The investment portfolio represents a significant segment of the Corporation's asset base. The rapidly changing marketplace, in terms of new investment products, the level of interest rates and the shape of the yield curve mandate that the portfolio be positioned to take advantage of these opportunities as they avail themselves to achieve earnings enhancement and capital creation. See Table 11 for a summary of the investment portfolio as of December 31,1986,1985 and 1984. The Corporation Asset and 1.iability Management Committee sets guidelines, within which matu-rity mismatches are managed. By actively restructuring the securities portfolio, in both size and content, as market opportunities becorne available, the Corporation is able to offset undesirable asset and liability maturity mismatches as they occur while additionally fostering the objective of maximizing portfolio performance as defined by " total rate of return". Tbtal rate of return is comprised of interest income, realized gains and losses and the change in the value of the portfolio from period to period. Unlike the traditional measure of investment perfor-mance (the accrual rate of the securities), total rate of return recognizes the tradeoff that exists between the earnings from a passive portfolio (the accrual rate), the increase or decrease to capital arising from rerlizing gains or losses in the portfolio and the market's view of the value of the portfolio as expressed in appreciation or depreciation. This total rate of return on the money mar-ket, treasury, agency, tax exempt and mortgage and other asset-backed securities portfolios being managed by BANC ONE centrally was 16.1% in 1985 and 13.8% in 1986. Consistent with an opportunistic portfolio management philosophy,1986 witnessed significant changes in the composition of the Corporation investment portfolio. Three actions occurred in 1986 that highlighted the changes. 45

_v y. I In the first half of 1986 the relative attractiveness of money market assets diminished, while the Corporation's exposure to falling interest rates increased. This phenomenon supported a shift into = 4 intermediate maturity U.S. Treasury and Federal Agency securities. The fixed income market rallied in the spring and summer months, widening the spread and increasing the relative attractiveness of mortgage backed securities versus treasuries and agency securities. Consequently a major shift to the mortgage backed market was made in the second and third quarters. In the third and fourth quarters, in the wake of newly legislated tax reform, tax exempt money I I market assets became attractive short. term havens for funds versus other taxable alternatives. hx legislation enacted in 1986 essentially eliminated the tax advantage of holding newly purchased tax exempt securities beyond 1986. I hble11 Securities Portfolio and Money Market Assets I $(nillions) Securities Portfolio l U.S.1hasury States and Taxable Money Markct Assets" and Federal Political Tbtal Equivalent l hxable lix Exempt Agencies *' Subdivisions Other Securities Yleid"' >======== December 31,1986 l Maturity Within one year $577.7 $ 95.8 $ 297.0 $ 174.7' $206.8 $ 678.5 8.66 % i One.five years 677.5 371.1 367.9 1416.5 9.92 % ( Five. ten years 161.1 325.6 16.8 503.5 12.17 % Over ten years and I equity securities 78.5 343.4 74.4 496.3 15.26% Total book value 577.7 95.8 1214.1 1214.8 665.9 3094.8 Market yalue 1243.6 1297.9-674.9 3216.4 hxable equivalent ~ > k.. 8.16 % 14.87 % 7.69 % 10.70 % purchase yield 635% g':J. 8.50% Average maturity .1 yru g,pl yrs. 3.5 yrs. 6.6 yrs.' 5.0 yrs. December 31,1985 'T Total book value $825.2 ' ~' $266.1 $896.4 $1440.9 $226.3 $2563.6 Market value 925.3 1454.9-228.0 2608.2 Thxable equivalent - S 8.51 % 12.57 % purchase yield @ @M.3 yrs. 8.13 % 10.40 % 10.28 % 14.59 % .5 yrs. 3.1 yrs. 7.0 yrs.. 5.6 yrs. Average maturity 7 December 31,1984 Total book value $898.9 $1014.3 $ 898.lb $177.7 $2090.8 Market value 1012.2 853ls-167.4 2032.7 hxable equivalent purchase yield 10.07 % 11.53 % 15.51 % 9.12 % 13.06 % Average maturity .3 yrs. 3.9 yrs. 9.4 yrs. 6.6 yrs. 'I " Market value of money market assets approximated book value.

• Exdudes tredmg account securities of $52.2 mdhon at December 31,1985.

"'See definition on page 44. 46 1

' ~;so r gig .~ Loan Ibrtfolio Average total loans increased $1.5 billion or 17% in 1986 compared to 1985. This significant growth occurred because of a $721 million rise in commercial loans and a $537 million rise in consumer loans. Credit card loans grew $228 million despite portfolio sales totalling $120 million in 1986. Strong retail loan demand, particularly in late 1986, generated a $309 million increase in average installment loan balances. The Corporation's commercial loan and lease portfohos remain diversified as no single industry concentration exceeded 10% of total loans and leases. See Table 111 for information about concentra-tion of commercial loans and leases. The Corporation's exposure to oil and gas and agriculwre remained small at.26% and.76% of ending loans and leases, respectively. The Corporation's foreign loans and leases were just.92% of ending loans and leases and.6% of total assets The Corporation's total foreign exposure at December 31,1986 is summarized in Table IV. Loan yields fell with market rates in r,eneral. Commercial and tax exempt loan yields, which are largely tied to the prime rate, fell 142 and 171 basis points, respectively. The yield on the credit card l portfolio declined as th Corporation lowered the rate in late 1985 on its local market portfolies. The i lease portfolio yield ivreased slightly as the high yielding HCL Leasing Corporation portfolio was l added on.iuly 1,1986. _ mmmmm. Table 111 Commercial Loan Concentration Balance at % of Year End Commercial Loans l $(milliond and Leases i mummmmmvam 1 l Real estate operators, managus, developers $706.6 13.06 % Other financial institutions, credit mncies and brokers 265.5 4.91 Wholesale-trade durables 259.0 4.79-l Construction contractors 250.1 4.62. Transportation, communication and pubfie utilities 234.2 4.33 Manufacturing-machinery 224.7 4.15 Manufactu:ing-food, apparel and furniture 212.3 3.92 Health service, 173.4 3.20 Holding and investment compan:es 170.6 3.16' Retail-restaurants 161.8 2.99-Manufacturing-fabricated metals 144.7 2.67-Manufacturing-paper and printing 133.6 2.47 47

- w w~wp.e./, Table IV Foreign Exposure as of December 31,1986 $(millions) Eurodo!!ar Letters of Tbtal Placements Credit and Investment Foreign Country and CD's Loans Acceptances Securities Exposure Japan $ 89.9 $ 10.0 $ 45.7 $145.6 United Kingdom 65.0 28.2 6.1 99.3 Switzerland 75.0 1.0 .2 $12.0 88.2 Mexico 18.0 49.7 1.5 .9 70.1 West Germany 45.0 45.0 Canada 45.0 2.4 5.0 52.4 Australia 24.0 13.5 37.5 Korea 29.2 29.2 Belgium 20.0 20.0 France 40.0 40.5 Netherlands 20.0 20.0 Other 16.9 36.6 2.6 56.1 $20.5 $703.9 Total $441.9 $105.8 $135.7 i Deposits and Borrouwd Amds Deposits and short-term borrowings primarily provided the funding for the earning asset growth in 1986. Average total deposits grew $1.3 billion and average short-term borrowed funds increased $411 million from 1985 to 1986. While most deposit categories experienced growth, money market savings alone provided 48% of the totalincrease. In 1986, BANC ONE introduced simplified, tiered pricing money market savings and interest checking products which proved very successful. The loan-to-deposit ratio increased from 81.1% at year end 1985 to 86.4% at year end 1386. The Corpora-tion is exploring additional loan sales like the successful sale of $120 million of credit card loans in 1986 to maintain appropriate liquidity levels, Rates paid on total interest bearing liabilities fell 119 basis points in 1986 to 7.13%, reflecting.tlWsigrtificant overall decline in rates to the lowest level in .gyy many years. Net Amds functiort The rapidly declining rates paid on interest bearing liabilities outpaced the decline in earning asset yields in 1986 enabling the net interest margin to improve 3 basis points. The provision for loan and lease losses stabilized in 1986 as the major national credit card program matured. As a result, the net funds function rose slightly from 1985 to 1986 to 4.83% of average earning assets. III. Other Income, Other Expense and Federal Income hues' N Components of other income, excluding securities gains, and other expense are detailed in Table V. Crowth in other income occurred because of higher fee income from investment programs, broker-age commissions, letters of credit, mortgage servicing and travel commissions. The largest category of other expense, salaries and related costs, grew 13.6% from 1985 to 1986 because of increased headcour.t from the 1985 and 1986 purchased affiliates and increased data processing and credit card base. Higher 1986 outside services and processing expenses were the result of $4.6 million of direct nonrecurring merger related expenses. 48

I + i hble y gnjnt' rest income and Expense Summary o 9n6 { Percent Change i 1986 1985 1984 1986/85 Non-interest income (excluding securities transactions Card processing and service income: Processing fees $ 52.2 5 51.6 $ 42.4 1.2% Merchant fees 19.7 15.9 16.7 23.9 Interchange fees 17.4 17.0 9.5 2.4 Subtotal 89.3 84.5 68.6 5.7 Income from fiduciary activities 41.9 36.0 34.4 16.4 Service charges on deposit accounts 58.2 52.3 46.4 11.3 Gain on building sale 13.5 Miscellaneous income 61.3 48.1 42.0 27.4 Total non interest income $250.7 $234.4 $191.4 7.0% Non-interest expense: Salaries and related costs $280.8 $247.2 $221.4 13.6 % Net occupancy expense 35.0 27.3 25.7 28.2 Equipment expense 25.5 26.4 24.3 (3.4) j Depreciation and amortization 40.0 35.8 32.2 11.7 1 hxes other than income and payroll 23.0 21.8 15.4 5.5 Marketing and development 18.5 15.6 13.1 18.6 Outside services and processing 66.6 47.4 36.9 40.5 Supplies 18.7 17.8 15.2 5.1 Communication and transportation 49.2 43.4 34.6 13.4 Other expenses 51.3 39.1 34.2 31.2 Total non interest expense $608.6 $521.8 $453.0 16.6 % Annualized net non interest expense as a percent of average assets 2.20% 2.00 % 2.07 % The provision for federal income taxes increased slightly from 9.58% of pre-tax income in 1985 to 10.32% in 1986. hxes on operating income excluding securities gains actually fell between the two l years from 10.80% in 1985 to 6.20% in 1986. This decline is primarily due to a 36% increase in average tax exempt assets between years while taxable earning assets increased just 11% in the same peilod. q Several provisions of the Ax Reform Act of1986 will have an impact on the future income of BANC ONE CORPORATION. Lower statutory tax rates, the disa!!owance of interest expense to carry tax exempt assets and the alternative minimum tax reduce the desirability for growth in the tax exempt por' folio. These factors collectively will result in an increase in the future effective income tax rate (see Note 10 of the accompanying Notes to Financial Statements). In addition, the hx Reform Act of 1986 eliminates the tax deductibility of additions to the loan loss reserve and the cash method of accounting for financial institutions. These provisions along with the above increase in the effective tax rate will result in an increase in taxes currently payable. These changes do not materially impact the liquidity of BANC ONE. 49

i ) l k l \\ l The Thx Reform Act of 1986 also changes the deductibility of interest expense by the affiliate bank non commercial customers. While the Corporation expects some change in customer borrowing behavior the principal change expected is a shift to loans secured by such customers' residences. 1 The Financial Accounting Standards Board has issued an Exposure Draft on accounting for income taxes. It requires use of the deferred tax liability method, which, if enacted, will change the liability for deferred income taxes but should not have a negative impact on the Corporation. IV. Asset Quality BANC OFE policy dictates that a commercial or real estate loan be classified as non-accrual at the earlier of 120 days past due or when collection of interest and principal is in doubt. At that point all accrued but unpaid interest is reversed and charged to earnings and the loan is charged down to the current value of the collateral. For installment loans, all interest recorded as income but not re-ceived and the remaining principal balance are charged off when a loan becomes 120 days past due. Credit card loans are charged off at the earlier of the date they are deemed uncollectable or 179 days past due. BANC ONE has an internal monitoring systun that provides monthly analysis of delinquencies by loan type, nonperforming assets and potential problem loans for each affiliate. Each affiliate pre-pares detailed reports each month listing activity in these categories which are then reviewed by its management, directors and the Corporation. The potential problem loan report subjectively classi-fies loans as watch, substandard, doubtful and loss. At December 31,1986 the doubtful and loss categories totalled.44% of total loans. Non-accrual and renegotiated loans ended 1986 at 1.38% of total loans. Loans that are 90 or more days delinquent, which are not included in the non-accrual and renegotiated loan figures, dropped from.65% of total loans at December 31,1985 to.57% at December 31,1986. The reserve for possible loan and lease losses rose from 1.28% of total loans at December 31,1985 to 1.36% at year end 1986. Of the $18.3 million increase, $9.1 million was added in recognition of the sharp rises in the installment, credit card and lease portfolios that, while providing significantly higher yields than most other loan categories, have historically higher loss levels. Also, $3.9 million was added to the reserve to reflect exposure in a commercial real estate loan. V. Liquidity and Interest Rate Sensitivity The ability to maintain, or have access to, sufficient funds for potential customer demands is the focus of liquidity management at BANC ONE CORPORATION. Fotential customer demands include the need to fund additionalloans and the necessity of meeting such demands for fund withdrawals i that might occur. The Corporation views net short term assets or "on books liquidity" as indicating available balance sheet liquidity which can be most easily accessed for incremental funds. The "on books liquidity" is the first and most reliable source of incremental funds. The next potential liqui-l dity source is a solid base of 459 affiliate bank branches in four states, providing access to a growing 1 market of retail deposits. The third portion of the liquidity management system is the ability to access large liabilities in the local affiliate markets. The systematic management of liquidity by the Corporation includes the sales of funds between banks, allocating available liquidity and minimizing l 50 L________.______._

\\ the unprofitable maintenance of excess liquidity. The final source for incremental liquidity is the ability to access large liabilities in the national marketplace. The national market as a source of funding is a readily accessible market, but is generally held to be the least stable source of funding. BANC ONE has established policy guidelines for the major liquidity sources. Table VI illustrates the sources of liquidity at year end 1985 and 1986, as well as on average during 1986. The first liquidity source, "on books liquidity", is composed of money market assets, government a 1 agency secu-rities and the collateral value of exempt securities net of short-term borrowings nd public fund deposits. By Corporate policy, total dependence on large liabilities and national market liabilities is conservatively maintained at less than 25% of earning assets net of money market investments. Large liability dependence was 19.86% at year end 1986 compared to 18.5S% at year end 1985. A component of large liabilities is national market funding, which is potentially the most volatile funding source. National market liabilities are composed of net federal funds purchased, large CDs issued in the national market and insured brokered CDs. At year end 1986 net national market liabilities were equal to 9.30% of loans and securities compared to 7.63% at year end 1985. well below the 25% guideline. The increase in national market dependence was primarily a result of higher fed funds purchased. The increase in large liability dependence during 1986 was primarily the result of a change in money market investments. Table VI Liquidity 5(millions) Year End Average 1986 1985 1986 On books liquidity 5 269 $ 786 $ 1,158 Earning assets $15.216 $14,134 $14,482 Less money market investments 633 790 1,319 Loans and securities $14,583 $13.344 $13,163 Large liabilities: National market: Federal funds purchased $ 1,137 814 5 963 CD's $100,000 and over 106 134 28 Insured brokered deposits 133 156 176 Total nationt,'. market liabilities 1,376 1,104 1,167 Less federal funds sold - (20) (86) (115) Net national market liabilities 1,356 1,018 1,052 Other large liabilities: Repurchase agreements 684 773 778 Eurodollar deposits 252 292 282 Other short term borrowings 322 264 300 Local market CD's $100,000 and over 865 804 857 Total large liabilities 3,499 3,237 3,384 Less money market investments (603) (762) (940) Net large liabilities $ 2,896 5 2,475 $ 2,444 Large liability dependence 19.86 % 18.55 % 18.57 % National market liability dependence 9.30 % 7.63 % 7.99 % 51

1 I An essential part of liquidity management is asset / liability management, with a goal of managing interest rate risk. BANC ONE's policy is to minimize the impact of fluctuating interest rates on earnings and market values by limiting maturity and repricing mismatches on and off the balance sheet. Table Vil is a schedule of the Corporation's asset / liability sensitivity as of year end 1986, As shown, BANC ONE was slightly liability sensitive (excess liabilities over assets) in both the short-term and at the one year level. BANC ONE utilizes instruments such as interest rate swaps and options to manage the interest sensitivity position. f I Table VII Asset and Liability Maturity Repricing Schedule as of December 31,1986 5(millions) Within Four Seven to One to Over Three to Six Twelve Five Five Mocths Months Months Wars Years Total n====== nummmmme menemmum nummmmme mammmme summmmmme Earning asset.r. Money market investments $ 573 $ 22 2 9 $ 26 $ 632 Securities 204 311 231 1,145 1,300 3,191 Loans and leases: Variable rate: Commercial and tax exempt 4,218 28 4,246 Real estate, mortgage 271 71 18 48 14 422 Other 919 919 l Fixed rate: Commercial and tax exempt 158 71 72 373 431 1,105 Real estate, mortgage 70 30 64 345 458 967 Other 459 243 440 1,638 1.110 3,890 Total loans and leases 6.095 443 594 2,404 2,013 11,549 Total earning assets 6,872 776 827 3,558 3,339 15,372 Interest bearing liabilities: Demand-interest bearing 945 41 82 478 1,546 Regular and money market savings

• 1,594 129 243 1,328 446 3,740 CD's less than $100,000 1,317 769 551 1,066 105 3,808 CD's $100,000 and over 875 125 127 336 4

1,467 Purchased funds 2,031 37 7 66 173 2,314 Tbtal interest bearing liabilities 6,762 1,101 1,010 3.274 728 12,875 Cap before interest rate swaps and options 110 (325) (183) 284 2,611 2,497 Net interest rate swaps and options (112) 20 82 (42) 52 Cap adjusted for swaps and options (2) (305) (101) 242 2,663 2,497 i Cumulative adjusted gap (2) $ (307) $ (408) $ (166) $2,497 $ 2,497 Cumulative adjusted gap as a percent of earning assets L01)% (2.00)% (2.65)% (1.08)% 16.24 % 16.24 % i j l + Regular and money market savings are scheduled to reprice based l on their expected sensitivity to changts in market rates. ] 52

i VI. Capital BANC ONE historically has sought to maintain superior levels of capital compared to peer banking organizations. At year end 1986 primary capital was 8.03% of adjusted assets, wellin excess of the regulators' requirement of 5.5%. For the year average common equity represented 7.23% of average assets, producing the highest level of capital to assets reported by any of the nation's 50 largest banking organizations. Capital ratios are maintained through matching dividend increases to earn-ings increases so the dividend paid as a percent of income averages between 32 and 35 percent. To the extent feasible the Corporation seeks to use its common stock as the vehicle for exchange in acquisitions so that equity is increased proportionally to the assets acquired. As a result over the past ten years the annual growth in common equity of 15.3% compounded exceeds the compound growth in assets of 13.7%. Corporate policy requires each affiliate bank to maintain capital ratios in excess of regulatory standards. Affiliate bank capital ratios are generally adjusted by means of divi-dends paid up to the parent company rather than by downstreaming debt to the affiliate. The underlying principle in managing the parent company's capital position is to ensure access to global debt and equity markets to provide maximum funding flexibility. Table Vill presents key ratios relating to the parent company's capital adequacy for the past three years. The Corporation's short-term debt is accorded the highest quality ratings by Moody's and Standard and Ibort and the long term debt is rated Aa2 and AA by those agencies respectively. During 1986 BANC ONE cstab-lished a Eurodollar note issuance facility for $150 million for five years which is supported through a committed stand-by facility from 18 major overseas banking organizations. One hundred million dollars of this facility is available to support the Corporation's commercial paper in addition to the $180 million of domestic bank lines used to back-up commercial paper. The Corporation has no specific plans for direct market issuance of long-term debt or equity. The three bank affiliations currently pending will be consummated through exchanges of the Corpora-tion's common stock as detailed in Note 4 to the Financial Statements. The Board of Directors authorized the issuance of up to $300 million of medium term notes having maturities of nine months to ten years. To the extent such notes are issued, it is anticipated the proceeds will be used to fund non-bank activities in leasing, mortgage origination, and consumer finance areas. Thble VIII Capital Ratios Dividends Paid as a Percent of Net income Parent Company Ratlos Corporation Internal Goodwill Fixed Affiliates Common Equity Double to Common Charge Year to Parent Dividend Generation Leverage

• Equity Coverage" 1986 35.9 %

33.8 % 10.9 % 1.021x 9.5% 5.18x 1985 33.0 31.9 11.5 .999 10.8 2.13 1984 36.5 32.5 10.9 1.066 13.7 2.65 i

• Parent investment in subsidiaries plus goodwill divided by preferred and common equity
• Parent pre tax net income plus non-cash and mterest expense duided by interest expense and preferred dividend 53 i

1 VII. Other 1985 Compared to1984 Signi6 cant consumer loan and tax exempt security growth generated a $1.6 billion rise in average earning assets between 1985 and 1984. Explosive credit card growth (up 55%) because of the Comp-U-Card program occurred despite the sale of over $160 million of loans to unrelated third parties. hx exempt loan and security balances nose sharply as the Corporation shifted its earning asset mix to take advantage of its favorable tax position. Yield comparisons tracked the declining rate environ-ment of the two years in general as total earning asset yields declined 54 basis points from 1985 to 1984. hx exempt securities yields were the exception as yields climbed 41 basis points between 1984 and 1985 because of attractive yields available to the Corporation in 1985. l Funding the asset growth was achieved by growth in all borrowing categories. Deposit growth occurred primarily in money market CD's (up 16%) and money market savings (up 25%). Rates paid I on most borrowing categories fell with interest rates in general. Other income increased $43.7 million from 1984 to 1985. A signi6 cant portion resulted from the $13.5 million gain on the sale of the downtown of6ce buildings of BANK ONE, INDIANAPOLIS. The j other major contributor was card processing and service income which rose $15.9 million,largely j due to increased credit card balances and the revenue they generate. Other expenses rose because of ) the increased card processing activity and full year operating expenses from the 1984 purchased j i af61iates. i I Net income rose 23.5% from 1984 to 1985, while net income per common share increased only { 19.1% because of the full year impact of additional shares issued in the 1984 purchased af61iates. ) l Fourth Quarter 1986 Compared to1985 Because of nonrecurring items in both fourth quarter 1986 and 1985, net income decreased from $51.1 million in 1985 to $46.5 million in 1986. In the fourth quarter of 1985, a $9.3 million after-tax gain on the sale of of6ce buildings was recorded while in the fourth quarter of 1986, nonrecurring merger related expenses and adjustments of $3.1 million after tax were incurred. Strong earning asset growth generated a $24.6 million increase in net interest income. Speci6cally, strong commercial and installment loan demand in the fourth quarter of 1986 were major contrib-utors to the growth. Signincant positions in collateralized paper taken in the fourth quarter of 1986 ) primarily caused the average taxable securities growth.1Wo core deposit categories provided the bulk of the funding for this asset growth, money market savings and interest checking. The net funds function improved from 4.66% to 4.83% as the provision in the fourth quarter of 1986 was l 10 basis points lower, indicative of improved credit and chargeoff trends. l InRation l The Corporation has consistently maintained that the impact of inflation can be minimized by properly matching maturing and repricing opportunities of assets and liabilities. Changes in interest rates, which are largely driven by inflation expectations, become less signi6 cant under this operat-ing philosophy which concentrates on managing the net interest margin. The emphasis on spread management instead of guessing on the direction of future interest rates enables the Corporation to maintain stable margins in both high and low inflation environments. The narrow range of net interest margins over the past 6ve years, which included both high and low inflation periods, of 4.99% to 5J3% bears this out. 54

~. BANC ONE CORPORATION The Blue One Awarc. I 1 l 8 ar s A (. [ e I b-( f. s . y) .j s Y Y. ~ ^* Q[*s% pm t j g v ,s 9 j .c ti s 5 ~ . 4 h.,; 2 ,1 g es b# %f' Some of the MNK ONE. MANSFIELD staff members signal their pleasure in winning the first annual cuerd for outstanding affiliate bank performance. The ten best affiliates in 1986, based on the eight measures ofperformance, were: 1-Mansfield. 2-Dover; 3-Cleveland. 4 Alliance. S Marion. 6 Sidney, 7-Ashland, 8 Milford. 9-Fremont, and 10-Coshocton. Recognizing unusual achievement and bank, said that it was a total bank victory stimulating special effort is an important and one in which all 250 employees can ingredient in our management style. In be proud. order to reward outstanding overall An attractive silver bowl trophy affiliate performance, the Blue One identifying the annual winning bank was Award was initiated during the year, presented to the Mansfield staff for The staff of BANK ONE MANSFIELD display in their main office lobby. The won the first of what will become an trophy will travel te tiie winning bank annual event created to recognize the each ye-best performing affiliate. Maintaining high performance Eight categories covering bank throughout BANC ONE CORPORATION profitability, credit quality, reserves and is a part of our daily life. Congratulations liquidity, and productivity were to the winners of the first Blue One considered in selecting the winner. Tom Award and keep it up. Hoaglin, President of this year's winning 55

l SANC ONE CORPORATION EXECUTIVE John L. McCoy John F. Fisher William C. Leiter SeniorVice President Controller OFFICERS Chairman Frank E. McKinney, Jr. William P. Boardman George R. L Meiling President Vice President Tireasurer Roman J. Gerber R. Patrick Handley Executive Vice President Vice President DIRECTORS William M. Bennett John G. McCoy Chairman

Chairman, BANK ONE, DAYTON, NA Executive Committee BANC ONE CORPORATION Daniel C. Boone Director Frank E. McKinney, Jr.

BANK ONE, DAYTON, NA President BANC ONE CORPORATION William L. Case" Partner Rene C. McPherson W. Lyman Case Enterprises Corporate Director Leonard K. Firestone" Robert H. Pbtts Private Investor Chairman BANKONC, COLUMBUS NA John W. Galbreath* Owner John W. Calbreath & Company Seward D. Schooler" Retired Chairman John F. Havens" BANK ONE, COSHOCTON, NA Retired Chairman BANC ONE CORPORATION Robert D. Mlter Chairman & Chief Executive Officer Edward H. Jennings CardinalDistribution Inc. President The Ohio State University William K.Westwater President John W. Kessler Westwater Company Chairman John W. Kessler Company Leslie H. Wexner Virginia W. Kettering" Chairman Chairman The Limited Inc. C.E Kettering,Inc.

• Honorary Director John B. McCoy

" Director Emeritus Chairman BANC ONE CORPORATION 56

q g- .r gg ~ BANC ONE CORPORATION 2 ProSc 4 BANC ONE CORPORATION is a Delaware-chartered bank holding company which owns all the stock d j 34 banking organizations operating in Ohio, Indiana, Michigan and Kentucky. The Corporation's 22 Ohio 4 banks operate 323 banking offices,9 Indiana banks operate 116 of6ces,2 Midii;,an banks operate 10 offices and one Kentucky bank operates 13 offices Additional wholly owned subsidiaries offer financial services in areas of mortgage banking, consumer finance, equipment leasing, fiduciary and trust services, credit life insurance, and dixount stock brokerage. BANC ONE has acquisitions pending with three banks in Indiana c and one in Michigan. L J r Afnllates Pending AfEllates OHIO EN.B. Bancorp, Inc. (fenton, Michigan) BANK ONE* AKRON' NA Charter 17 Bancorp, Inc. (Richmond, Indiana) The Northwest National Bank (Rensselaer Indiaria) 'E L E.NA First National Corporation (Bloomington, Indiana) 0 'E BANK ONE, ATHENS, NA Stock '&ansfer, Registrar, and Dividend BANK ONE, BELLAIRE, NA Reinvestment Agent BANK ONE, CAMBRIDGE, NA BANK ONE, CLEVELAND, NA Common and Series A Preferred: BANK ONE, COLUMBUS, NA BANK ONE, DAYTON, NA l BANK ONE, COSHOCTON, NA Kettepng hr I BANK ONE, DAYTON, NA Secuntyholder Services Department 3ANK ONE, DOVER, NA Dayton, Ohio 45401 i BANK ONE, EASTERN OHIO, NA (513) 449-8796 BANK ONE, FREMONT, NA 1-800-848-0191(toll free,n Ohio) i BANK ONE, LIMA, NA BANK ONE, MANSFIELD Stock Listings BANK ONE, MARION Common: BANK ONE. MIDDLETOWN New York Stock Exchange: Bncone 2 BANK ONE, MILFORD, NA 'I1cker Symbol: ONE j BANK ONE, PORTSMOlTTH, NA Series A Preferred-1 BANK ONE, SIDNEY, NA NASDAQ: Banc! PfA BANK ONE, WAPAKONETA, NA Ticker Symboh BONEP. BANK ONE, WOOSTER, NA 10-E Report BANK ONE, TRUST COMPANY, NA Shareholders may receive a copy d BANC ONE's. INDIANA 198610-K Annual Report as filed with The BANC ONE INDIANA CORPORATIOMz, y-[. Secuqties and Exchange Commission upon - submtsuon of an appropnate written request ta. ~ BANK ONE, CARMEL, BANK ONE, CRAWFORDSVILIE, NA ~C George R. L Meiling at the corporate offices. BANK ONE. ELKHART The report will be available after April l,1987. BANK ONE, FRANKLIN W BANK ONE, INDIANAPOLIS, MA BANK ONE, LAFAYETTE, NA BANK ONE, MARION, INDIANA, NA BANK ONE MERRILLVILLE, NA I BANK ONE, PIAINFIELD, NA ~ d ..'.'h:,'~m' MICIDGAN -f'%l j 9,$, -Ijw; Q,' BANK ONE, EAST LANSING BANK ONE, S1URGIS- >~ ? ~ IENTUCKY ~. .I.' BANK ONE, LEXINGTON, NA Non-bank Alfilates BANC ONE BROKERAGE CORPORAT10N BANC ONE CREDIT CORPORATION BANC ONE FINANCIAL SERVICES,INC BANC ONE LEASING CORPORATION BANC ONE MORICAGE CORPORATION

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a e o.ou nan - - MnancialHighlights' b "3"'" 11uw Months Ended June 30, SI Meaths Ended June 30. ~e Forcent reneet th 1987 1946 Change 1987 1986 g /4Ak '- For the period b Tbtal operating revenue $ 475.451 5 466.890 1.8% $ 941.350 $ 932.830 .9% r h,"r Net income 18,680 51.676 (63.9) 78.130 100.357 (22.1) y "~ Per common share ~.83 1.07 (22.4) W Net income .20 .55 (63.6) XA. Cash dividends * .23 20 15.0 .44 .40 10.0 i f 7I ' Stockholders equity 14.19 13.06 8.7 / At period end / ' 'O Anets 17.693.000 16.474.000 7.4 I fi.- Deposits 13.671.000 12.849.000 6.4 h. i Totalloans and leases 12.152.000 10.561.000 15.1 T M 's Common equity $ 1.370.000 $ 1.186.000 15.6 / L) Shares outstanding t000) g'Y W Common 96.545 90.775 Series A Preferred 990 "t Key ratios 6 Return on average auets .44% 1.27% .92% 1.26 % Retum on mrage common stockholders

• equity 5.56 17.28 11.78 17.14 A

Anrage common stock. k;P holderf equity to as ets 7.82 7.16 7.71 7.13 {h k. Net interest margm* 5.75 5.65 5.78 5.71 j ~ ni am au nm.d i. aut tiw enen w.= iws.,w t iwr es

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i.na, w==== 01 Dwedesw i et shste Agures apr ant thonged to renact snpost af pusted afN Met dawidends praor le weregrr. 01 Fulh tanaaer servawnt hasa %er defimisenen pese 30 , ~y Wf k. h,h g,a. p + (h j k 4 j g s [;' h mo (.) Q.R q,,%.. Effective August 24.1987 BANK ONE. INDIANAPOLIS, NA will become the stock transfer agent, agh .k: registrar, dividend disbursing agent and dividend reinvestment agent for BANC ONE common stock. ~ $..e "U Shareholders may communicate directly with: BANK ONE. INDIANAPOLIS. NA ~ M 101 Monument Circle 3 Indianapolis. Indiana 46271 k ? (317) 63 9 8110 v% . b'hb [ kh.. s u ? i ./' l lha r R._ v FN Y .b 4 .W + .yM.w, 3 s.c :.t yk ;*. - , wr 2, ' ' NNh p'PA. fat 1 W-(h$f ; +[r u / . pmm@jff.1,,y ' w s "I j 4 g mm n %r 1 g-N... .Y h k 3.Mk4: hick.%emew.a>-:s s, t x %.. e 4 .a x m3 m $y,aq, d.%s v w. ym. . s. n~.

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-4 i Report from Management BANC ONE CORPORATION reported net income of $18.7 We are most pleased to announce the election of John R. a million or $.20 per share for the quarter ended June 30 and Hall to MNC ONE's board of directors. Mr. Hall is ',y sax month net income of $78J milhon or $.83 per share. Rese Chairman and chief executm officer of Ashland Oil. Inc. Mr. - a i camings per share compare to $.55 per share for the second Hall jomed Ashland Oil in 1957 and serwd as president of its quarter of 1986 and $1.07 for the six months last year. Ashland Chemical subsidury. Ashland Oil. headquartered in Second quarter and year to date net income was impacted by Ashland Kentucky, is the largest empkyr m Kentucky. d. the decision..nnoi+ ed on June 24. to make a special g addition c( $53 malf '.: to the reserw for possible loan losses, BANC ONE's fundamental operations continued at y hs special provts.on, adjusted for MNC ONE s effects tax extremely strong lewis dunng the second quarter. Total rate, produced a charge to camings of 3.43 per share, loans grew at an annuahmed rate of 14.6% dunna the quarter and the net interest rnargin tracked lewis 9 On July 24 BANC ONE announced it had reached a established both in the first qJarter and las! War's second + 3-de(irutive agreement for the affihation of The Manne quarter. Credit quahty continued to show across the board f Corporation headquartered in Milwaukee. Wisconsin.1he improwment. The lewls of both non-performing assets and Marine Corporation has assets of $4.3 billion and operates delinquent loans declined for the fourth consecutive quarter. 21 banks with 76 offices throughout Wisconsin. Fol!owing Net charge offs dropped from an annualized 1.05% in the t this affiliation MNC ONE will have combined assets of $22 first quarter to.92% of loans in the second quarter. billion, resulting in the 23rd largest bank holdmg company The decision to make a specia! provision for loans to less in the United States.,lt will operate 57 banks with 546 4 offices located in Ohio. Indiana Wisconsm. Michigan and developed countries (LDC loans) should be viewed in the t ' h Kentucky. Under the terms of the agreement which were context of snarket and banking industry trends. The u. reached under competitiw conditions. MNC ONE will issue followmg table enmpares BANC ONE's action with that of r

• b '"

2.332 shares of common stock for each share of The Manne the 41 other top 50 banking organizations which elected to 6 Si-q Corporation, producmd a transaction valued in excess of make special reserw additions in the second quarter. p' $500 million.The Manne Corporation will become BANC g,g 4 f Q ONE WISCONSIN CORPORATION and its affiliate banks will sANC Repening _b 3 /.8 change their names to reflect the affiliation witn MNC N Bak" fe I4 ', p i f ONE. George R. Stater, who is Chairman and chief executiw I.DC Exposure to 1btal loans .7% 4.8% of1he Manne Corporation will retain those positions at 3 n as a ercent og f, BANC ONE WISCONSIN and will be elected Vice Chairman J 'k'* 5% 29 % f, and dvector of MNC ONE CORPORATION.

• h i

AAer Tax Provision as a Multiple of Y The Manne Corporation's banks collectiwly haw owr a

• Normal' Quarter's Eamings

.7 x 5.3 : M' ., /~.J 10% share of Wisconsin bank deposits and haw an ewn a,,,,,,,, u.r i., p vs. m + et'- larger presence in the greater Milwaukee - northem Chicago metropohtan area. MNC ONE expects its strength Not only does MNC ONE haw one of the lowest 1

• [ ]'

in cornumer lendmg will complement the Manne's exposures to LDC loans among the nation's major banks. M i . E. capacities in middle market lendmg and leasmg. Manne's but we chose to create the highest lent of loan loss reserws .p,k'4 organization of autonomously operated community banks of any of the top 50 banks.We were able to create reserve Ly dosely parallels BANC ONE's " Uncommon Partnership" lewis that reahstically reflect current market values of LDC f3 %'px qp operatmg structure for its affihate banks. The Manne credits at the cost of less than a full quarter of camings. g Corporation's cammgs retum on assets and retum on equity haw mereased in each of the last fiw years. For 1986 As we indicated when we made the announcement of the Ib .,m +% /:3 : Manne reported a return on assets of.92% retum on equity special prmuon, we udy expect to rem to nonnal y'gp 44 W of 14.06%. and all-time high earnmgs per share, camings rates for the balance of the year and expect that fa t..- full year 1987 income will be at record high levels. IM During the second querter BANC ONE completed the affiliation with the First Navonal Bank of Bloommston. the 3 - Corporation's tenth Indiana tek. Renamed MNK ONE. BLOOMINGTON. it operates 9 onces in Monroe County and has total assets of $270 million. InAana liniveruty is located { Q, g' , 2 44'.4r s b' in Bloomington which enhances BANC ONE's strong market W;*Y. presence in major college and uniwrutv communities M n B. McCoy M f,,g4 I;s e,oueoui me m,d.esi. Chas, man _ m, 4, .. s ( m.- ,3; 9 ?.. .,, I t F W st .A L. T ' [yi ErE 8 I w s pp hb

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] 4 / ame aus commanom.no ese ConsoM*d Balance Sheet i = $nhausends) tunaudiisd) June St. Decesiber 31. Jens30. 4 1987 19e4 1986 6 - 5 ^ Aasets: q' Cash and due from banks $ 1.129.367 $ l.242.871 $ 1.258.857 s d-Deposits m other banks, mtereat bearmg 415.092 577.699 426.518 i 4 Short term investments 168.035 54.845 243.463

• e Sacertiles.

United States swemment obli6ations 637.229 549.500 724.834 y Obligations of lederal agencies 615.924 664.597 500.695 . k.. (/+ Obli8ations of states and pohtical subdmssons 1.175.713 1,310.672 1.541.930 Other securities 696.112 665.8!Il 434.081 N y* r i b. %stal sacerttias (market value approximates 13.154.000 at June 30.1987) 3.124,978 3.190,740 3,201,540 N g/ $'! l.eems and leases e. /."t Commercial, financial and agncultural 5.001.366 4.543,037 4.159.550 gg, f heal estate, construction 490.480 497.421 358.004 e p Real estate, mort 4 age 1.387.006 1.389.199 1,424.400 = y Consumer 4,304.091 4,125.171 3.729.529 -p g 111 esempt 729.831 808.236 838.662 leases $12.507 467.867 334.515 6 Cross loans and leases 12.425.281 !!.830.931 10.844.660 Uneamed loan and lease interest 273.039 281.859 283.426 1btalloans and leases 12,152.242 11.549.072 10,561.234 l 4 Reserw for possible loan and lease loues 217,876 156,670 134.949 Et loans and leases 11,934.344 11.392.402 10,426,285 e $rf Other anets: j Bank premises and equipment, net 270,538 265.134 255.165 + c Interest earned not collectui 170,177 159.032 171,566 r Other real estate owned 13.085 19.685 18,283 ii

• V Excess of cost mer net assets of affihates purchased 145.207 147.247 137,584

~ n. Other 321.818 322.249 334.583 / y. 1btal other assein 920.825 913.347 917.181 { L 1stal assets $17,s92.643 $17,371,904 $16,473,844 I Webelties: k@,.@ p -non.intenst beanng $ 2.539,489 $ 2.810.286 $ 2,540,932 .R Demand-interest beanng 1.558.275 1.546.014 1.282.785 w M 5avmss 1,066.757 1.074.481 1.081,587 4' Money market accounts 2hJl.534 2.664.900 2.230.096 Time 5.614.608 5.274.986 5.713.368 A Tdal de9esats 13,470,663 13.370,667 12,848,768 Md'? 4*e' Short. term borrowmgs: [ b; @ 4 t f-Federal funds purchased and repurchase agreements 1.829.106 1,823.480 1.501.315 [ p' e p Other 275.767 321.267 274.700 i b 1btal short. term borrowings 2.104.873 2,144.747 1.776.015 Imil-term borrowmp 155.561 169,734 175,876 %,' c

• Other liabilities:

e.' ,G '/ r'. Accrued mterest payable 111.677 104.205 156.623 n-0 Other 279.785 282.571 281.419 -Ne g, -T Ibtal other liabilities 391.462 386.776 438.042 I? Satel l'euttles 16,322.559 16.071,924 15.238,701 Mj r P" Preferred stock. Senes A convertible. no par value. 5 000.000 shares s.5. ' ~ authortsed, none,988.418 and 989.783 shares suued, respectably 49,421 49,489 50' Ceaumes stockholders' egidtyt q Common stock, no par value.15 stated value.300.000.0rd. shares authonaed,96.544.836. 90.988.044 and 90,774.806 shares tuued. r. respectrwty 482,724 454.940 453.874 , * < + a t-Capital m excess of aggregate stated value of common stock 431,911 388.879 388.648 w% M Retained earnings 455.469 406.740 M3.989 htal convinse stadiheiders' oguity befeet treasury shares 1,370,104 1.250,559 1,186,511 D".. less 127,868 treasury shares, at cost (857) Tb /- heal **==== stschheiders' equity I,370,104 1.250,559 1,185,654 4M Totalliabuities, preferred steek and cosimos stechbenders'egelty $17,692,663 $17.37 8.904 $16,473.844 7 'f g ne e.a.e - e.wi. si.e 9 g 3 ,x = +W l. 3 A .e ' N

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4 j I l $402 WE 00sp0Mrtoef ed Subedenes i Consolidated Statement ofincome g 4-for the Uwee and su month perunus ended Anne 30,1967 and 1986 N 84 thousands, secsos per share data) tunaudited) per the 7twee Montbe Ftr the sie Meeths f Ended June 30 Ended June 30, 1-1987 toes 1987 tese i ?. Reserut income: '[ ^ Intmst ar d fees on loans and leues $ 332.602 $ 315,'464 $ e42,229 $ 628.269 $(8* Interut and drndends on: Obhgations of U.S. gernment and federal agencies and other securities 37,751 35.654 76.255 67.435 1 l Otdidations of states and pohtical subdinssons 24.092 31.262 48.705 64.418 y ) Other interest income 8 o45 16 / 73 _ 15.618 34.844 i j'4 __ - 9 1stal huherset lacace 403.390 399.153 792,807 794.966 g* % - laterest expemaer interest on deposits: ,-+ f-Demand and sannes deposits 66.514 62.385 129.153 123.789 r. Tirne deposits 103.914 134.149 205.792 267.782 Other borruwings 36.302 34.669 70.417 73.985 k, f 'I, 1stallaterest sepease 306,730 231.203 405.38_2 445.556 het laterest inesome 196,660 167.950 387.445 329,410 ~.y ~,' Pronsson for loan and lease losses 85.247 11.426 115.500 60.762 list lederest imeone anse pesvislea for leen and lease loans 113,413 134.524 271,945 260,048 r7 other lacemet h-Income from nducary actMties 12,123 10.644 23.772 20.688 i Smka charges on deposit accounts 15.573 14.380 31.236 28.311 pg-l Card processing and sernce incorne 24.738 21,871 47.849 42.871 ~ 5.335 4.319 11.638 15.611 .~ Secunties gains Other 14.292 16.32's 34.048 30.383 S h 3 tal other lacesse 72,061 67,737 148,543 137,864 s Other esponses: 9 Salanes and related costs 76.558 67.684 151.646 137.647 be 3 Net occupancy expense, esclusiw c(depreciation 9.528 8.347 18.925 16,740

• 9' Depreciation and amortization 10.743 9.647 20.870 18.903 Outside services and proccums 17,555 17.271 34.901 30.932 s' : -

Cornmunication and transportation 12.863 11.845 25.603 74.084 Other 34,741 32.783 68.054 63.817 C 1stal other expenses 161.988 147,577 359.999 292,123 y% lacesse be(m federallaceae taans 21,446 56.684 100,449 114.389 Federalincome tax: ^ ti income excluding securitws transactions (1.396) (3.163) (19.083) (7.079) F Secunties transactions (1.410) (1.845) (3.276) 46.953) a,, "~

~

Not laeone $ 18.680 $ 51,676 8 78.130 $100.357 W/w, s f .m '3 Not lacesse per esames she $.20 $.55 8.83 $1.07 QJ.pf [f, ' 'hM vl Weighted average common shares outstanding (000) 93.757 91.238 92 661 91.192 e$c cw s A The -

notes are an suegral pari af the 6nanual autemenIA i

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g. &u '.v %W ~ & % :n ' M '??&' V ' ' ' a* - 'M' Mp BM 951 : and &disupones con.oma swment aci e in nnamwtwo ist the ses neuehs sadal Amu 30.1987 and 1906 8thammatil tm) egy toes FusAs reads Not Pueds Fnunds Not P, eded Used names Pro 6ded used chness Not sncome 5 78.130 3 100,357 5 5 horns not requiring use of funds during period: Depreciatan, amortisatinn and accretion, net 23.025 13.992 Pnmsson for loan and lea, !Jss4 115.500 60,762 OperaNams 216.655 216.655 175.111 175.111 Cash dmdends declared 43,992 34.302 Purchase and reurement of treasury shares I.179 Ittire preferred stock 464 1,000 taercise of stock options 3.793 772 Otlwr equity transactaans 18 172 isauance of stock for acquisitions 32.675 5.841 Emdeu traanastions 36.468 44.474 (8,006) 6.785 3ti.481 (29.6961 Deposits 10,645 324,184 j Federal funds pusthased and repurchase j agreements 16,624 245,837 Commercsal paper 10,604 38,769 other shcrt4erm borrowings, net $9.852 44,098 Ima-term borrannes. net 14,173 12,121 Deposat liabelstus assumed 81,149 Lintnhtws of acquired companies 315,349 34.531 Deposits and borrowings 336.598 90.649 245.949 478.633 302.056 176.577 -? Deposits in ether banks interest bearing 162,607 398,690 Short term irmstrnents 36.230 254,534 investment secunties 167,663 302,709 i Sale of credit card loans 100.000 120,000 Loans and leases 628,127 653,702 r'. Acqumtion of subsidiary banks: Secuntas and short term investments 181,758 17.644 Net loans 128.595 18,544 Earalag anasts 430,270 974.710 (544.4401 773.224 992,549 (219.375) Cash and due from bank.s 142.822 109.400 Additions to bank premises and equipment, rwt 19,109 11,414 Escess of cost owr net assets of affdates purchased 846 9,206 ~ Cash and other assets acquired for h assumption of deposit habihties 81.149 ? Acquisition of subs 4 diary banks: - q Other a.ssets 37,803 4.723 A Other liabihtws 1,138 478 Other, net 3.640 105.953 .s ' k'"[$+ Other 147.600 57.758 89.842 109.828 212.445 (102.617) ~ /' g 11stal $1.167.591 51.167.591 51.543.581 31.543.581

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l 1 ) y y M r.@.: one eat commmon m.s.n Consolkided Stdement of Changes in Common Stockhokiers' Equity tur tie three and en nennth periods ansied June 30. IM7 and IM6 Sinhassands) tunmadded) hr the 7hsee Mamthe For the Sts pesoths 'u I;aded Jens a Eaded Juer 30. 1987 IMO 1987 1984 p Banance, besmnang of penod 5 1296.516 5 1.151.627 8 1.250.559 8 1.113.681 Net income 18.680 51.676 78.130 100 357 Purchase and retirement of treasury shares, at cost (1.179) 0.179) y Shares issued for acquudians 26.596 32.675 5.841 Emeruse of stock optaons 1.582 287 3.793 772 v E. Conwrunn d Series A preferred into common and other 48.944 377 48.939 484 7 Cash dmdends 5 Corpormion: 5 Common ($23 aral $20 per share for the three months and 5.44 and $.40 per share for the sa months e6ded June 30.1987 and 1986) (22205) (U.187) (41.402) (25.991) Prefened ($1375 per share for the three and sas rnanths ended June 30.1967 ant;$1375 and 52.75 per share for the thm ars! sas mornho ended Asw 30,1986) (9) 0.361) 41.368) (2.729) Paidafnham um n 222i (5.582: anisass, June 30 t 8.378.le4 81.185.454 $1,378.,104 81,185.654 8 Consolidded Statement of Reselw for Possible tan and Lease Imses + for the three and oss month perands ended hrne 30.1967 and 1986 ('A Sitheunends) tunmadded) per th.e 7huse 80saths Pur the Ses 80selbs ..d a e = x.d.n e = -s 1987 1988 19e7 1984 j I Balance, begmmns of period 3 157.809 $ 133239 5 156.670 5 128.895 b Acquired reserws 2.053 0 29) 2.845 807 s Pronsson for loan and lease losses 85247 31.426 115.500 30.762 ~ i ! cases charged to the merw (36.78l6) (38.016) (76.028) (72.4631 - i pecovenes 9.553 8.429 18.889 16,948 6 Net losses charged to the reserw (27.233) (29.587) (57.139) , $134.949 (55.515) ~ rat Raamare. Juan 30 --$317.874 5134.949 --8217.876 h . f@& l c i S[ A Notes to Financial Stdements ..y a "d 1.The accompanying nnancial statements are unaudited. Howewr. en the opmaan of management, they contain all adjustments (all of .{ whach are normal and recurring in naturel neceuary to present fair the 6nancal posation and the results of operations. 7he riotes to p* 1 the 6nancial stasanents contained in the 1986 Ane.ual Report to should be read in con; unction wth these nnancial w m I. Pnor period 6tures in the accompanymd financsst statements how been restated to include sin 1946 daee Note 2 in ttse 1986 Annual Report to blockholders) and two 1967 afhhatmns tsee Note 3 below) accounted for as poolmes. i

1. The pronsaan for iederal enccrm taxes is at a rate which management belsrves will approiumate the effective rate for the year.

3. On January 2.1987, the Corporaison acquired all of the outstanding capital stock of Spartan Binkenrp, Inc. en East Lansind. Mehigan.

On knuary 26.1987,the Corporaten acquired all of the outstandmg capital stock of Amerh:an FMcher Corporaten m fndsanapohs. Indiana. A total of 21.718373 shares of common stock were issued m these transacthms which were accounted for as poolmes. On 5% 1 I-February 27. 1987, the Corporaten acquired all c( the outstanding capital stock of Ttw Fmt National Bank in Fenton. Michigan, for ,d ? 255.541 shares of common stock which was accounted for as a purchase. On Jurw l.1987, the Corporattori acquired all of the outstarmhng , 4F capital stock of First Nattonal Corporation m Bloommaton, indiana. issumg 1.979.835 shares of common stock. The transaction was j accounted for as a poolmg. but pnor period hgures mere not restated due to ernmateruhty. [.

4. The Corporation has agreements pendmg for the acquisiten of two indiana banking entities. First National Corporation in Bloommgton.

h' sr' ,3 and Charter 17 Bancorp. Inc in Richmond, and one Wisconsm bankmg mstitution. The Manne Corporation m Milwaukee. The actree. rnents prtride for an exchange of common shares of the Corporaten for all outstandmg shares ci the entitus. The number of shares to R@. q' be issued generally is related to the awrage market pnce of the Corporation 1s stock. Based on the market price of the Corporation's stock j at.*uru 30.1987. H is anticipated that approximately 19.000.000 common shares will be issued in total. hy.

8. In June 1987, the Corporaten increased rts reserws for possible credit losses from third world nations by 54$ milhon, an amount in escess d 55% of the Corporation's loan esposure c( $82 milhon.

e 3[ #; j

8. In the second imately b000 shares of therter of 1987, tin conwrtible Senes A Preferred shares issued in 1983 were called for redemption. As a result. all but

)j D 988.160 shares were converted to common stock which resulted in the issuance of an addsteonal g y 3 000 common shares in the second quartet i as h.e f

7. The Corporation has filed alth the Secuntwo and Enchange Commasion a shelf registraten for the issuance of up to 5300 rrulhon of i

manum an, Not. g J g unert this inciht, s to be drawn at vanous d.tes m the autore at prevaiimg inicrest rates. The Corporat.on has not yet issued any drbi f.% p I I l y j y .+ L.w[s, fgqQ$8R.;R , v _b , g 4 l w$3 A. ,.y Q un[a i f w. w. i E r j$. 9 . mm.g4pw$.g &a.,..w-gpw,R kj&e A 6QQ."g a w a ~ f~X..$.fR q a g t- .s 4.~ g... .m. m,._

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i i g ~ ' < 2x,%?.e. uo- - f< name an aawounou and s e er-e 8-Aerage Ba!ances, income and Expense, Yields and Raks Winsuaandsnunambise test y "R tad Quartsr iet Quarter.... Asurnes W*/ YndPI W' Iseanne*t Yishr's g m.a.-- r.a, aane sainnee rw aans k Assets ? see reanu b hable $ 1,874,238 8 37,813 8.00 % $ 1.898.011 $ 38.568 834%. br h esempt 1.185.046 39,586 13.40 1.235.406 4tt.380 13.26 -? 1hemi escarties 3,063,284 77 Jet 10.14 3.133,417 78,948 1022 3 laams and hansou Commercial 4.877.845 111.952 9.21 4.571.527 100.784 8 94 i-Real adate 1,858.977 48,C04 10.34 I.835.693 46.629 10.30 installment 2,759,136 83,005 12 07 2.656,696 79.421 12.12 Credit card 1,303,574 82,434 19.27 1,355.968 66.812 19.98 .s. k enernpt 745,429 22,378 12.04 798.656 22.550 11.45 L4ases, net 392.664 12.475 12.95 372.247 11.537 1237 (. (l.can ard lease loss viserw) (163.230) (156.577) Nedsens and lanees 18,775,406 340.448 11.60 11,434.210 327,733 11.62 h Money market matruments: Interest bearbg deposas 385,853 6,854 6.32 312.417 4,009 6.50 Fed funds solc and repos 147.829 2.291 5.22 110.726 l.664 6.09 12a1 money uarhet instruments $33,482 8,948 4.73 423.143 6.673 L40 1stal earning assets 15,370,172 426,992 11.14 14.990.770 413,354 11.18 Other assets I,851,004 1.869.487 b' A,. 1stal assets $i7,221,976 5 16.860,257 IJubilettee k (2 Deposus. t Demand: Non interest bearing $ 2,381.540 $ 2.382.088 3 Interest twanns 1,537.584 16.850 4.44 1.511.315 16.588 4A5 Sadngs: llegular 1,061.904 12.384 4.88 1.052.274 12.33r 4.76 Mormy marlur. 2.834.598 37J76 8.27 2.686All 33,79-5.80 Time deposits e Money market CD's 3.204,974 80.373 7.55 3.200,491 60,923 7.72 Cin 5100.000 and wr-h' Domesus 1,475.881 25.544 4.94 1.412.696 23.873 625 v b.- Foreign 153,548 3,396 8.47 155,191 2.988 Other tune 712,634 14,509 8.22 656.197 14 -*. 7Al 3[% t,d o f & 71 p. 7atal depasats 13,344,496 170.428 5.11 13.057.063 164 i 5.11 4 3 c.- Bonomed funds: 1 g short. term 1.983.038 31,994 S.44 1,949.174 29.'. 6.19 g Long4erm 157,424 4,306 10.96 163.654 4.3 10A5 WW~3 {s 74 7 lIk. 1btal borrowed funds 2,150.644 34.302 6.77 2.112.828 34.115 635 M 1htalletsvest benrlag lisbumiss 13.133,820 206.730 6.31 12.787.803 19M32 6.30 rg Other uabihues 332,340 360.650 wy fatal Mih 15,847.700 15,530.541 EJ-Preferred 27.119 49.4.11 + f[ Common stockholders' equity 1,347,157 1 280.295 1stallis4 Gales, coenseen and preferred stock $lf.221.976 $ 16 fl60.257 E Net laternet lact.eae* 220,262 5,75 214,72P 5Al "4 Pnmsson for loan hpe.

a.,

and lease losses (85,247) (2.23) (30 2531 (.821 ~4 Not funds functise $135.015 3.12% _ 5184.469 499% p(j g.y . a ?". +

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, g%. Amrage laemune'"i W44*/ Asurage l a====*"V WW8Y Aserage loconne 'y W W ','I ma - = Essense Raae salance Ezeense Rase salinee tas.ase kas m{ ,1:(4 l yn A. $ 1,766.953 $ 36.):8 8.11 % $ !.719370 $ 35.810 826% $ 1.555.629 $ 36.573 9.43 % h;T 1.433.683 49.987 13.83 1.5A6.976 53 927 13.48 1.575.519 54.272 13.82 .#ip g 3.200.636 86.105 10.67 3.306.346 89.737 10.77 3.131.148 90.645 11.64 b 4 j h 4 212.555 96.421 9.08 4.183.596 95.974 9.10 4.099.719 102.357 10.01 A 1 1.830 288 46.330 10.04 1282.280 48.481 10.79 1.859. % 8 49.899 10.76 ,G J 2.553.139 78261 12.16 2.403.903 76.582 12.64 2.256231 73.651 13.09 t'h 1261.66) 63.800 20.06 1222.465 63.082 20 47 1.248.730 64.125 20.60

#]~v 823.250 27.280 13.15 836.607 28.883 13.69 856.734 29.590 13.85 7

345.726 12.106 13.89 335.891 11.802 13.94 255.730 8.141 1227

.t.

% '9}1 (142.692) (139 4411 (135 958) [J. 1

• %3 10.883.927 324.198 11.82 10.625,591 324.804 12.13 10.441.194 3U.763 1239

c...g g,

537.706 8.232 6.07 437.832 7.686 6.96 $M.613 9.638 7.66 '{' yf, L 214.947 3.089 5.70 139,8_38 2.230 6.33 416344 7.235 6 97 752&g 11.321 5.97 577.670 9.916 6.81 920 957 16.873 7.35 34 14.837.216 421.624 !!.27 14.509.607 424.457 11.61 14.493.299 435.481 12.05 l.884.272 f.807.202 1.827.538 q, $16.721.488 816.316.809 516.320.837 Ng ( r

u.

t ,,4 V ' :.;9 $ 2.451.740 $ 2282.451 $ 2213.446 f. O, y 1.407,692 16.534 4.66 1.285.819 15.841 4.89 1 2 06.240 15.231 5.06 gT( gr fM..J.g,, 2.588.987' 33.475 5.13 2.361.480 33376 5.61 2.140.985 32,763 6.14 .m, 1.053.152 13.263 5.00 1.062.772 14.219 531 1.066.723 14381 5.41 y;;f .,,L 9.. 3.148.216 64.604 8.14 3 380.169 75.802 8.90 3.441274 79.491 927 p '4 N. 1,323.200 22.275 6.68 1 302.088 24.080 734 1.628.990 31.813 7.83 %[' -[A 3 277.504 5.502 7.87 292.569 5.448 739 326.836 6.350 7.79 p 746.412 15.529 825 741.775 16.393 8.77 717267 16.505 923

h. 9)'

E 12.996.903 171.182 523 12.709.123 185.159 5.78 12.741,761 196.534 6.19 ,i;t[ht - 1.910.939 28.166 5.85 1.788.088 26.482 5.88 1.736.714 29.804 6 69 g,, L"[ 171.773 4 371 10.10 187.!!2 5.fl99 10.81 177344 4.865 11.00 , ~,,,,, g.. 2.082.712 32.537 620 1.975 200 31.581 634 1 964 058 34.669 7.08 '. g. bM&M 12,627.875 203.719 6.40 12.401.872 216.740 6.93 12.492373 231203 7.42

p. ^.

@^ehr 352.873 372.485 396.882 bg 15.432.488 15.056.808 15.102.iol g 49.462 49.489 50.280 d)? s 1 239.538 1.210.512 1.167.856 .hk'4k: b' g :l,g. - $16.721.488 $16.316.809 1 6.3 %.837 j M.? "..% 217.905 5.83 207.717 5.68 204.278 5.65

J- -

p f., v%*4 p, (37120) (1.01) (31.68tl t*"t (31.426) 087) N f $180.285 4 82 % $176.036 4 81% p.Y% $172.852 4 78 % . )r &Y k+? 4

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g,n i

n.4. ~ r- ,,.- a. 1 r.ria ew ms: 44 ') '~ '. t loans and leases tnet o(unearned) $ 12.152.2 $ 11.725.5 $ 11.549.1 $ 10.807.4 8 10.561 2 8 , E.f.9.j f.arrund asseu 15.642.5 15.116.1 15.215.7 14.683.7 14.297.8 f 3 [A%M-f f *.L.* b h aucu 17,692.7 17.073.8 17371.9 16.626 2 16.473.8 41 c.3' '... N 1but deposiu 13.670.7 13.331.8 13.370.7 12.776.9 12.648 8 Long term debt 155.6 160.1 169.7 176.7 175 9 Y 4 MWa Reserve for loan a.nd lease losses 217.9 157.8 156.7 1413 134.9 ~- q j' Cornmon stockholders' equity 1.370.1 1.296 3 1250.6 1.220.5 1.185.7 Os,; I '.Jr Total pnmary carsul 1,588.C 1.454 3 1.4072 1,361.8 1.320.6 g,41% h <' Q" ' ' Camdened incese. statement-h Net interest inconwa {[. < 220.27 214.72 217.91 207.72 204.28 860.62 @ 'd 3 'h Promaan for loan and lease losses ' 85.25 30.25 37.62 31.68 31.43 184.80 C.'Ty a

TM

[p: Net funds function'* 135.02 184.47 18029 176.06 172.85 675.82 t.,2 r.e Other income. d Servica char 2es cri deposits 1$.57 15.66 1522 14.66 1438 61.11 p,p. 3 ty Fiduciary income 12.12 11.65 1056 10.62 10.85 44.95 . 'lyy -N P g#Y skr - Card processing ard X.4 e /.- service income 34.74 23.11 2439 22.14 21.87 9438 47- -ff Securities traruactions 5.34 630 3.75 5.89 432 2128 Nff?" l g.. Other non-mterest income 14.29 19.76 14.40 1655 1632 65.00 ' J (4p. 'gg. 1bul other income 72.06 76.48 6832 69.86 G7.74 286.72 1,# j r tb, Other expense: "f.h y Salanes and benefks 76.54 75.09 73.99 69.15 67.68 294.79 bif Occupancy and depreciation 20J7 19.52 20.78 18.59 17.99 79.16 Sy T Other non4nterest expense 65.16 63.40 73.46 60.45 61.91 262.47

ii[.2 R f 'f.eI Tbul other expense 161.99 158.01 168.23 148.19 147.58 636.42 Gif m

m' lizable equivalent adjustment 23.60 23.93 33 52 36.i5 36J2 117.20 ( '<-d A, ;),. Het income before income tas 21.49 79.01 46.86 6136 56.69 208.92 M :hi h c -4 Tases on operating income 1.40 17.69 (.83) 6.01 3.16 2427 ',j/g ** 3 3Ni A thses on securnies transactions 1.41 1.87 1.19 2 60 1.85 7.07 .G N K. hy -p.,- a Net facmas 18.68 $ 59 45 46.50 52.95 51.68 $ 177.58 'a Y UI[ l$ .p Net income available to [ g ccentnan stockholders $ 18.67 58.09 $ 45 14 1 5159 $ $030 $ 173.49 i j /<< 1 * & ' '.y - e r 2',a r '6. - 9 [*' ijed

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.... ~. c.,,. - ~ c s s-one om cowe= Ten w suew l Consolidated Quarterly Financial Data Sunslaasns emmyt per swv data) tunmaditadj ~ Omartsre 1967 1984 g,, \\ neceed First Fourth Third $seend 12 m w o.n.ths hay operating rities*: I Ql. g#., 'f; g'# -. Retum on awrage auets .44% 1.43 % l.10 % 129% 127% l.07% Return on awrage common equity $.56 18 40 14.45 16.91 17.28 13.67 1[f, Awerage cominon equity to assets 7.82 7.59 7.41 742 7.16 7.56 Endmg primary capital to assets 8.87 8.44 8.03 .2 7.95 8.87 n ren analy.l.~. %sh 1 merest income 11.14 11.18 11.27 11.61 12.05 1830 9 Interest expense 5.39 5.37 5.44 5 93 6.40 5 53

• 'N' ~

Net interest income 5.75 5.81 5.83 5.68 5.65 5.77 Pronsion for loan and lease losses 2.23 .82 1.01 .87 .87 1.23 't

h..

Net funds function 3.52 4 99 4 82 4 81 4.78 4 54 s, 3 Credit analysiss Net charseeffs to average loans + .Y. and leases .92 1 05 .82 1.05 1.12 .96% f'. 'il' Ending reserves to loans and leases 1.79 % 1.35 % 1 36 % IJI% 128% s ' C,V$.. Non performing assets: M,% lbtal $174.53 $177.51 $179.01 $174.17 $181.95 D Percent o(totalloans and leases 1.44 % 1.51 % 1.55 % 1.61 % 1.72 % l 4 4 '; J Loans dehnquent 90 or more days *: l { C., s-1btal $ 56.87 5 59.74 $ 65.37 $ 64.05 1 79.54 I 1%. s Percent of totalloans and leases .47% .51% .57% 29% .75% l

j. O,.h Per common share data:

'O. Net income .20 .63 .49 .57 .55 $ 1.89 d54 Net income as originally reported JO .63 .61 .59 .56 2.03 . 'N~> Cash dmdends+ .23 .21 .21 .21 20 .86 Book value 14.19 14.18 13.74 13.44 13.06 f ' jg ' Stock price: -g# 1 High 28.13 28.50 25.63 28.63 33.13 28.63

k. i

/, d[- toe 23.25 22.88 22.63 23.88 27.88 $22.63 k I Close 8 27.63 $ 2625 $ 22.88 $ 24.25 $ 28.50 W F* Shares traded (0001 7,723 11.389 7,354 5.780 4.399 32.246 [.D. %!r t q5-WF a s a os,.ain tc eans I,.%.N w

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.,, n,-.a + o x y ( l ) us.e o.e commo am sma*s Management Analysis of Operations nh W (( BANC OP CORPORATIONS 19A7 results melude one lw7 and two INTEREST EXPENSE r# N 1985 af6hations that were not mcluded m 19n6 results becauw of Totalinterest expense deshned for both the wcond quarter and 6rst <g 4 [% the uw of purcha.w accounting, a method which combines the com-sin months of 1987 comteared to the prior year. kates paid for all pi pames' results from the merger date forward All appropnate prior mierest hearing liabihbes fell 101 and 119 basis pomts with the mar- }s _ 8p@ period information was restated for six 19N6 and twv hrst guarter l6et herween comparable three and six month perg>ds at 1987 and s 1967 af6harmns accounted for as poohngs of intereMs. a mettui 1%6 Total awrage interest bearing habihtees rose $t>to millmn and .g&.g i i' which assumes the two companies were combmed for all perimis $620 milhon m the same comparnon. ,X 6/w presented. Another wcond quarter 1987 arnhation was accounted for Mapor growth occurred m astrage core depout balancu increaws jfa#- c$ f as a puolmg of mternts but rrmr periods nnancial miormation mas m excess of $1.1 bilbon ci awrage tulances were recorded in mter st YF e rz not restated dw to immateriahty. Thew af 6hations are described m and non interest bearmg demand and regular and money rnarket J [nI 4 J > ~~ greater detail m Note 3 on Page 5. Income on earnmg assets subiect savmgs in both three and six month periods' compansons (see Table h to either a reduced or zero rate of federal mcome tan as presented (n 2L Sew simph6cd interest bearmg demand and money market saw 77 4-a fully taxable equivalent basis which is cornputed by dwidmg the ings products wuh tiered pricmg that were mtroduced m 19Bo haw W y-3 twmpt mcome by one mmus the mcremental federal mcome tas successfully attracted sigm6 cant additional deposits. The Corpora-HN

1. 4 rate of 40% m 1967 and 46% m 1960.

tion s unique method ed local pricmg and gatherms of deposits pro- 'd*=- INTEREST INC0plE vides an ef6cient fundmg mechanism for those afnliates with high [#W Dechning interest rates and the effect of a lowr federal marginal tumtws beyond their local market which benchts the Corporation loan demand. It also gins the deposit generators tendmg oppor. ~F i income tan rate m 198't ifor conwrtmg to fully taxable equwatent as a whole.

1. q '

basist combmed to produce dechnes m total.nterest mcome fue h', both the threc and six month periods ended June 30.1987 compared Table 2 g to 19%, l

fy*

A sigm6 cant shift in the carmns asset min has occurred owe the %g past twelw months. Awrage totalloans and leaws haw mcreased D,E, POSIT G,R,O%,,T,,H ANAIXSIS g,,,,,,, p4, $1.4 billmn, or 12.W. for both three and sin month cornparisons. At $ased Quarter $4s meths 3,,,gi,,,,,, if the same time, awrage short term mwstment balances h*"he loan Chames Chans jM M decimed approximately $400 milhon Iwe Table it Drning t O *E 's/ h h Al% growth are increases of 19% for commercial loans and m excess of d*" '8% 20% for mstallment loans and 6nancing leases. The rise m awrage herne,s Perust Awrap Perust gg,, c% gg..,, (w, ti h_- %.J credit card balances occurred despite the March 31.1987 sale to an summme mensmunes mammme imemummes dgP unrelated third party of an additional Slott milhon ci loans to main. p, mand-non.mierest bearms 516e 7.6% 5 213 9 li% Wi 9, d)e tam an appropriate min of retail and wholesale loans. Sigm6 cant Demand-mterest beanng 331 27.5 348 29.5 3% ZM fourth quarter 1986 auto loan actr.1ty contnbuted most to the $500 sanngs 6e 21.5 691 22.1 +rv 'J m milbon mcrease m mstallment loans. The Corporation s emphasis Nner marbt CDs (22 46.86 1244: 47.11 ? 8

• 9N dy on home equity lending products has added sigmhcant balances CD's 5100.000 and eer (3266 (16.76 (2921 tl$ 41 d

h me the past tweht months. Othee time deposits (5i t 61 (161 42.31 'TQ ,.9 The general mterest rate decime owr the past twelw months and the change m the margmal federal mcome tan rate caused the yield W W grwds 5 623 4m 5 700 $6% ' v9 - ~ ,hs on total earnmg assets to dechne from 12.0% and 12.28% m the M second quarter and the 6rst six months of 1986 to 11.14% and 11.16% NND$ WNCTION 7 m the second quarter and brst sin rnonths of 1987. The lower 4W The wry closely monitored net mterest margm increased 10 and 7 fM margmal mcome las rate for 1987 resulted m an 18 and 19 ba:,is bass pomis m both three and six month comparisons of 1967 to L pomt dechne for the three and sin month renods endmg June 30. 19% tsee Me 31. This increase nuld be 18 and 19 basis pomts M@ i J .s 1987. Smce the taxable eeuwalent yields are a pro forma cakulaimn. higher if the impact of the Imver 4% federal mcome tax rate is not -y ~. they do not have any imract on the true economic yield to the Cor. considered m wder to make the comparisons more meaningful. n ', Q;- F-Q poratson. Most portfoho yields traded kwr in 1967 as rates in This margm improwment comes from sharp mcreases m higher l iJ T general fell between the periods, rnargm retail lendmg. dechnes m interest rates paid on deposits that 9 4, outpaced the dechnmg loan rates and lontred usage c(more expen. Q e Table I snv large denommaten deposits. .G l d; Q in the wcond quarter of 1967. the Corporation recorded a one.

• Ygw 6

w EARMNG ASSET CRO%TH ANALYSIS time prm1sion of 553 milhon. pnmardy to increau its reserws to 1 h4 1987 remoared te 1986 m re than 55% of the loan exposure to lesser dewtoped countnes y'n Sunnd Mr Sia M 't M r# 5<milkunst -- Change wide recogniton of the problem mv e considerations m the special - N. (LDC'si. Recent detenoration m these world markets and industry '*e p%" Change Q in ta resent estabhshed to cmtr expected losses on the planned sale of 1N bersF Percent krap Pereest these aswts that repreunt.7% of total loans and leaws. As a result [C g Balance Chante Balance Champ of this srecial promen, the Corporation s resent for credit losses ",['P th sumped 51 basis pomts to 119% from the 1.28% at June 30.1986. g,,,,,,, %.

• i Commernat 5 771i 19.0%

5 729 18.3 % M rneanmgM masures of cr@ quaW shod imprmant p fr m Mr one par aga Nonpenormma assets decimed m absolute n as acal estate als in til at 01 dollars despite a 15% merease m total loans and leases. Loans dehn. .N Installmmt, net 50* 22.3 Smi 23 1 g slui i-. ' O' Ciedd card 55 44 t2 66 quent mer 90 days decreased 523 milhon m the same period to just y i.. '.47% of June SU.1987 total loans and leases. het charge offs for thm V.-- } CG he as and leases t second quarter were sust.92%. 20 basis pomts lomtr than 1986. Net Isans and leases 1.3no 12 9 i.345 12 9 4m , ;e total necuriswa tips 12 3 i U G-( ; '4* Short4rrm erwestments i3Ci 4421e e4Di 847 Si .M-

1. f Sital earning asset gewik 5 aan3 62%

5 913 6.3% r M,. a m i. I w e s, a. w.w ~?~. p,h h N.V ~ a-f n g[lh.nu&[f M b - "e.g .s [ N, =h, \\$ ~EQ. h h.)hd $ U, R ~~ E.d' O f ?! y SM M . p y g m.. y g. m. y 1@.,n g - ng W.w wp. .n m c. m r M l W % C G & 6 M O 1; MfGbdW'&M,MM h&MB." 3 ' r.MM, L __

.c s- . v - ~- - z n - .-. -- -m a e y .g V% My ' LM,.

n. 5 -

.e o Table 3 tble 5 c& FUNDS FUNCTION ANALYSISd* OTHER INCOME AND EXPENSE

SUMMARY

f NA""'"d'I

y f'er the Ma Months Ending June 30.

54a Months 1987 19sse f.eding . g I M, June 30. g et g of p,,,,eq ' ' [W

Amersa, hrsg.

89117 1944 Change pdf I f* Earsang Earning '. 4 Amount Aawu Amount Aswis Odwr 6scoew imMmg munten

pay transaamnst r_

In6vme va earning aunts $^ao Mn il los $4ai 1/e 12.2sw income from Nuciary actmises 5 218 8 20.7 15 S % g y a I inwrest espenn 405 3n2 5 3n An5 556 6 57 Card proceums and wrwe mcome els 42 9 il 4 g w (8 - 4 het latemt ineame 434.9ne 5 7ti 404.570 5.74 &w chargo on

• wt amounts 31 2 2MJ NJ p

"'U'""'"'"" I Prmumn for loiin and traw los es 115 Suo I 53 6o 162 li6 Total other 6ecome $136 9 5122 't 11.9% - k-w, het feeds fumetina 5319 4A4 425% $343 mal 485% Otlwr empeem-n k,,87 Salarees and related costs $151.6 1137.6 10 2 % y IJQtllDfTY het accuperwy npeam 18 9 16.7 13 2 Q.? g;yd The Corporaton's June 30. lWt7 net short term assets nr 'on books teuipment expenw 13.8 12.7 8.7 dr$. q C lutuidity" decimed shghtly m wcond guarter 1987 swe Table 4L Depwnation and anmnisaison 20.9 18.9 to 6 p . A.Q large liability dependence ended the cuarter at 20.34% of net earn-M'rketes and dmiorwns 9.4 92 22 gi % g' Mg assets. withm the Corporation's 25% puhcy hmit and lower than outside wnes aad procusms 34 S 19 12 S gg 4, the March 31.1967 6gure commumcation and transportation 25.6 24.1 62 p.. s{$e haes other than income and payro;l 13.9 11.4 21.9 {Q, g4 Other apenus 31.0 30 6 13 gg Total other espense $320.0 $2921 9.6% v.c N 'E* LIQUIDITY ""8' 1% k^ W Jo.e 30. Much 31, o.' arse, ^"u a'"p"eree'n'i of awne'e nuets k =- suivihanas 5 ed d b''' 2.17% 2 13% j e}C d-1987 1987 1987 k D( f on touks huuidiis $ 172 NET INCOME AND STOCKHOLDERS' EQUITY

• d Earnmg auets net of money trwhet While net mcome and net mcome per share dipped in the second C

.a wwestmenta 15.059 14.543 14.837 quarter of 1987. third and fourth quarter 6gures are expec*ed to @Qs : xg F ? Large liabitueus show imprmement over prmr year results. The full year 1987 results ' ga i ' oa het national market habihters 1.333 IJ79 1J18 should still be above those of 1986, in the second quarter of 1987. P As a percme of net earmns aurts a 85% 9 48 % 8.88g the convertible Series A Preferred shares essued m 1983 wre called 'Y Jij Total net large habihters $ 3. ora 8 3.013 8 3.oti6 for redemption. As a resu;.t. all but approximately 8.000 shares of the '. @t- .lct* As a percent af net earnma auets 20.34 % 20.72 % 20.80 % 988.160 shares wre converted to common stock which resulted in P.%.s r-f the issuance of an additional 3.138.000 comenon shares m the we. NM %g OTHER INCOME OTHER EXPENSE AND FEDERALINCOME ond quarter. See Table 6 for an analysts of changes m net in.:ome )p';11? Ke TAKES per common share. pd JJ All categr,rws of other mcome grew at least 10% from the 6rst sin r M.h ['M months of 1986 to 1987. outpacmg the 9 6% rise m total other Table 6 wq P cunnses Isee Table 5L Retamed semcmg on Contmued sales of Mi s ,'A. credit card loans generates mcreased card rrocesses mcome while ANAL.YSIS OF NET INCOME PER COMMON SHARE fjh M L mamtainmg appropriate lun lestis. Increased fee income from new Second Sia k = ! ' n,a - and expanded erwstment programs, brokerage actrnty. mternatsnal Quarter Months ( ( ;*a trade facihtatmg. mortgage origmalion and wmcing and trawl mumme mummimus W f.f agency actmty cauwd most of the 12% merease in miscellaneous het hem smuaNe to commes '1p G.p ? encome. J.c - . A ended LL M p ; f. The Corporation's efforts to control expenses limited total expense June 30.1986 8.55 $107 . y. ,W to a 9.6% increase overall for the nrst ses months of 1987 owr 19M6. Increue idecreasel from chanen m: n= 'M lbtal expenses of the Indiana based af61:ates rose at a substantially Earnma auet volume 25 .53 4$ i i 'Q* lowr rate than the increase m mcome as cost control prostrams are het interest maram .07 .11

f. 4

[^ M being implemented. additional other encome sources are being Prmsson for loan ud leau loanes 0596 060p M dewloped and duphcate operations are consohdated. Other mcome euludmg suunten )i 7 = {Y@, The year to date ermmori for federalincome taxes has riwn from transactions .04 .36 4 y'"-Q .A 1237% m 1986 to 22.25% m 1987 becauw growth in taxable earnmg Secuntrs transactens .01 004 > g' k auets more than offset the 6% decime m the incremental tax rate. Other reenu t.15) 0386 W. 9 Strong loan growth m the fourth quarter of 1986 and the 6rst sin Prmm for federalincome tases .02 t.09 j PI.' months of 1987 has been primanly concentrated in taxable commer. come.mes of preterred sta 01 01 'm; L. **t cial and retail areas. At the same time. runoff without replacement suhtotal 21 .84 l- 'T = 4'4 of tas exempt asuts has occurred. as mdicated hv a 20% dechne m change m awrase common sharn t oli e ons ' 's f fa balances from June 30.1980 to 19A7. Tax law change = haw made M adable to cesames . \\e +Q buymg esempt assets less attractu and dechning mterest rates have F1 'h*"h*"'"~P June & lH7 'd*d '*d'd aM W 4 prenpitates more bond calls than expected. One program to control F 1.Y the nse m the effectrwe tax durmg 1987 immives the sale of collat. 520 $ A3 f.J erahaed mortgage loans of acquired af6 hates. Thew sales produce

W II l

4 i , n n, securities gains to the Corporation while generating tax losses at d'ow'w=e s== O'@d' g f,Q.,A the af61satt holdmg the low coupon asuts that. because of purchase " ' * * *

• P.

accountmg.wre discounted at the merger date to produce much t.' '%~ , '. ~.,K higher consohdated ytrids to the Corporation af ter the merger. P 3 iD F M Ct:, aw a In oA .42 s,w_.m_m#m _een_wp m m w w.m guan. v 9, l .. $, 1l h M h Y 5 m % wb N W

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=-; _n-ac I j name aus commanow e IJ.w EXECtTr!VE W B. McCoy John F. F6 sher William C. Isner 7 fjf!' OFFICERS Cterman Semor Mce President Controller Innk E. McKinney Jr. Wdliam P. Boardman George R. L Meilmg (.gf... y:p President %ce Prcudent Deasurer f'.,- Roman J. Cerber R. Patrick Hand:ey R' Esecutm Oce President %ce President .%.,, ~ j% q :y ; .. Le 1 k,.rp I l E Q* 'r, DIRECTORS Wdliam M. Bennett John B. McCoy Chairman Chairman BANK ONE, IRYTON. NA BANC ONE CORPORATION - a..V Daniel C. Boone John C. McCoy 'k" Director Chairman. BANK ONE. DISTON. NA Executm Committee BANC ONE CORPORATION wai.n t Case" g<~3 r Partner Frank E. McKirincy, Jr. 4M W 1pnan Cue Enterprbes President V P M'/ IMNC ONE CORPORATION teonard K. Firestone" h.M F 1 Private inveMor Rene C. McPtwrson Corporate Director $ ##d John W Calbreath' e g -M o Owner Robert H. Puts eMy .. e i John W Calbreath & Company Chairman r,i h;M@y: BANK ONE, COL.UMBUS. NA //4,4' Q John R. Hall f /t iN Chairman & Chwi Executive Officer Robert D. Mlter ' d j/d Ashland C,d. Inc. Chairman & Chwi Esecutu Officer 7# ':d Cardmal thstnbution. Inc. gf . I [/' , ~.* A John F. Havens" Retired Chairman William K. Estwater" .h J. Mkf BANC ONE CORPORATION Presuient ..N i .< e. e. Estwat,r Company w p Edward H. Jennings j *c ff President Leslie H. Maner . *. a.fs{ pS@f8 The Ohio State Untwersity Chairman -N k$ E The umited. Inc. John W Kessler pq&f e( Chairman

• Honorary Director

<3 ., e., ; John W Kessler Company " Director Ementus -'V'M. %rginia W Kettering" y c Chairman C.F. Kettenng. Inc.

• ,,,,@g W.H T.,. ' i-6

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/, '.r.,7tt d y 4,: Wf..,.. * !. :.rt,. ) e p'.:a %~.. j y ;,..... t ' z. _' i e -ac s . j eAwe esa commoaation saa sue.+.< V %,..i BANE OHIO .[ " ~ k: AFFILIATES MNK ONE. AKRON. NA Bruce S. Bailey ,e *'g , ' *i ':[ fMNK ONE. ALLIANCE. NA Andrew M. Marhevsky IMNK ONE. ASHLAND Robert O. Stnne q IMNK ONE. ATHLNS. NA B. T. Crover, Jr. h-I A. ki,'g+,t; 6 r" 3 IMNK ONE. BELLAIRE. NA kobert L. Byers ERNK ONE. CAMBRIDGE. NA James F. Irnes q y j i F.h BANK ONE. CLE\\IlAND. NA Karen N. Horn 3.j.- i BANK ONE. COLL'MBL'S, NA Donald L. McWhorter he Q BANK ONE. COFHOCTON. NA Jeffrey K. L'rkn r4 e kb' BANK ONE. DOVER. NA Carl E. Pisaccra BANK ONE. DMTON. NA Wil ham M. Dennett 1 l N $ g$ C,f,J,4 q BANK ONE. EASTERN OHIO. NA Jarre A. Baker J.),. BANK ONE. FREMONT. NA fucNrd E. Conklm pw.eg BANK ONE. LIM. NA Calbert J. Welinun QL BANK ONE. MANSHE1D Thomas E. Hoagim k$ I.qdl BANK ONE. MARION Stanley N. Pordius i ""~ i v.h BANK ONE. MIDDLETUWN R. S. Wtherwan 'r Y [C O IMNK ONE. MILFORD. NA John B. Burtchaell, Jr. Y EMNK ONE PORTSMOLTH. NA John D. O'Shea BANK ONE. SIDNEY. NA Jerome A. Wutner. Jr. EMNK ONE, %APAKONETA. NA Robert C. Lutz 3.bm Y,,u.%@N q IMNK ONE. %DOSTER. NA Robert C. Serwert , kA z IMNK ONE TRL'ST COMPANY NA C.Thorras Rxt i a ,j-.gq INDIANA gg BANC ONE INDIANA CORPORATION Frank E. McKinney. Jr. j t i ) gM o ' IMNK ONE. BLOOMINCTON. NA Charles A. Zebendon h 9, ~ k[M' - d y' IMNK ONE. CARMEL James M. Bagnoli 3teg/ Cg iMNK ONE CRAWTORDSVILLE. NA Donald E. Kitchens y,;jy 4 BANK ONE. ELKHART Cerald K. Pilmore 59 $.[' - IMNK ONE. INDIAMPOLIS. NA Joseph D. Bametts. Jr, IMNK ONE FRANKilN Patrick E. Chesebrough . [- 't..* IMNK ONE. LAFAYETTE. NA Stanley J. Calderon , 4-. F" BANK ONE. MARION. INDIANA. NA Homer C. Wilson f%g; l IMNK ONE. MERRll1ML11. NA James L Dandurand IMNK ONE. PLAINFTELD. NA larrv D. Sumrners p ^ l A,,i * /g i w. 3 I MICHICAN i EMNK ONE. EAST LANSING H. Jamea Fitzgerald [%,b, G /.m I IMNK ONE FENTON. M Robert L Cntchfield .r.d {'

p BANK ONE. STL'RCIS Bemard A. Sikorsk!

.y KE m CKv I... EMNK ONE. LIXINCTON. NA James S. Mahan. Ill q f.2r $,L,,;./. g.'..N-i .$4.'i,& M *.,y s C S eoA W A p.C @.g., NONBANK fMNC ONE BROKERACE CORPORATION 's j,4?. ~i AFFILLATES EMNC ONE CREDIT CORPORATION 'v,3 0

• [0.

W. i w% IMNC ONE FINANCML SERuCES. INC. ' 'y# .1 IMNC ONE LEASING CORPORATION

• • c 3.s IMNC ONE MORTCACE CORPORATION

. b- %d' ..W.@y@:i-J@r.. .l y . 4 .- p,.. +- h@'(. ~, L. e. PENDING Charter 17 Bancorp. Inc. (Rxhmond. ind6 anal ,M' I i AFFILIATES The Northwest National Bank (Rennelaer. Indiarul [8/ %, I,'lQ W, The Manne Corporatsun (Milwaukee, Wisconsm) A.$ tsub,ect io sharrhoi4e, and resuuto,y apprmn nyx ',f 3

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= v----,=---------' i l ~ jeg s f. V. Q {g(htY . fts. CONSENT OF INDEPENDF.NT ACCOUNTANTS <d g l ~* We f.ereby consent to the incorporation by reference s ir t b r) Prospectus constituting part of the Registration i,T. S* 4*.ome nt on Form S-3 (No. 'J 3-15702 ) of Banc One Corpor- ,f ation of our report dated January 26, 1987 relating to the consolidated financial statements of The Marine Corporation, which appears in this Current Report on Form 10-Q of Banc One Corporation dated August 5, 1987. f $b..-- f PRICE WATERHOUSE Milwaukee, Win onsin August 4, 1967 y. 3. s A* ^ ') ,f,A 'p);. a

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~~.v-q ~g ~m .:s,. r m-9 f' h h bef - h j i r a SECT *RITLES A.ND EXCEAJCE COMMIS$10N J Washington. 0.C. 20549 /+) m C'! MdM 10-K J } ANNUAL REPORT NR$t.4T TO SECTION 13 CR 15(d) or .j. THE SECa'RI!!ES EXCEANGE ACT OF 1934 Rf N% J Tor the fiscal year ended y j 6 December 31, 1986 >? f Connaission file number: 0-990 n 'M p-THE MARINE CORPORATION . /l[, (Exact name of registrant as dpecified in its charter) 1[ M VISCONSIN h (State or other jurisdiction of 39-0963011 g y incorporation or organization) (1.R.S. Employer .c ek Identification No.) 'Q !!! EAST VISCONSIN A'*ENUK. P.O. 80% 481 MIt.VACKEE, VISCONSIN b. i g.; (Address of principal executive cifices) $3201 J

n (11p Code) y r.

Registrant's telephone number, including area code b .. t, ,m 414-765-3000 ['_ ] Securities registered pursuant to Section 12 (b) of the Acts NONE y y} Facurities registered pursuant to Section 12 (g) of the Act: . 4; u7, 3 M d Common Stock, par value $2.50 per share (Title of Class) l

fsf, m-Cumulative Convertible Preferred Stock, par value $1 per share

'&g; gl'. I (Title of Class) j r.. i fC. C[ Ind'cate by check mark whether the registrant (1) has filed all r reports required to be filed by Section 13 or 15(d) of the Securities fxchange L 1' Act of 1934 Sting the pretuding 12 months (or for such shorter period that the 'E c y;)l registrant was required to fili such reports), and (2) has been stbject to such M '. 'g-filing requirements for the past 90 days. s @g FT b 9pC Yh,

p.,

Yes X No j,,. The aggregate market value of the voting Common Stock held by non-c .j. af filiates of the llegistrant. based upon the closing price of the Common Stock .9 [4h on the NASDAQ National Market on March 6, 1987, was $268,515.191. The aggre-5;e gate market value of the voting Cumulative Convertible Preferred Stock held by 7m non-affiliates cannot be determined because there have been no reported sales ?d Iy of such class of stock to date. y;%.y 7 The number of shares outstanding of the Registrant's Common Stock. a t; K., ". par value 82.50 per share, as of March 6.1987 was 6,317.878 4 a 3( DOCUMENTS INCORPORATED BY RETERENCE are listed on Pages 2-3 .,1-

p. >

t The index to Exhibits is set forth on pages 20 through 22. Q -['.- t d,(% ~ 's.V n ^ ).p[G 4 y a ,pg $W WI. r k_~ -_hh_I Nkfh_hl,.!f

.r mm vn--- n E-~- 1 - V l'. r k +:: ?-f hh n:: I I-a ( ) ~ DOCL*KENTS INCORPORATED BY RITERINCE > I b..r? PART I [ l g Ites 1 Business 1Ms' i >* Pages 16 through 19. 36 through 41 and 25 nf P.egistrant's 1986 Annual %l$ e h. Report to Shareholders. I k, y ites 3 Legal Proceedir.gs j Page 32 of Registrant's 1986 Annual Report to Shareholders. It et 4 Submission of Matters to Not applicable. j!q s Vote of Security Holders l[ PART II { LP Ites $ Market for the Reg',strant's [yy j Common Stock and Related Pages 1, 16, 29 through 31, 39 and 48 of P.egistrent's 1986 Security Holder Mattera Annual Report to Shareholders. p. 'N Tf~ Ites 6 7.7 Selected Financial Data M. Pages 33 and >6 through 41 of 7? kesistrant's 1986 Annual Report k,I R to Shareholders. hy item 7 Management's Discussion 4 h and Analysis of Financial Pages 16 through 19 and 36 threugh ,7* ) L -. : Cond! tion and Results of 45 of Registrant's l'86 Annual e. M,,e 3 Operations Report to Shareholde'.s. 6.t r a.C Item 8 Tinar*cial Statements and ) t Supplementary Data l Q l A Tinancial Statements f *1" Pages 20 through 35 cf Regis-trant's 1986 Ar. oval Report to N '.J.r k ht. Shareholders. f.[ E-Supplementary Financial $.{;r g Information Pages 33 and 36 through 41 of O . ;h' Registrant's 1966 Annual Report M **) a r to Shareholders. y PART 11 ac-C t.g Ites 10 Directors end Executive 4 ,1 gCd Officers of the '.yistrant Pages 2 through $ of Regis-T,. e.1 trent's Proxy 2tatement for k.. April 22, 1987 Annual Meeting of i: k Shareholders. h item 11 i g Exe.utive Compensation -S Pages 6 thraugh 9 and page 15 [p.,t., y of Registrant's Prcty Statement g,4 for April 22, 1987 Annual Meiting j of St.areholders. l .-k 0,* g J. Ites 12 Security ownersnip of b3' r2 M Certain Beneficial Pages 1 through 5 of Registrant'e Proxy Statement fer April 22, 1987 di k ;. h.e Owners and Management Annual Meeting of Shareholders. ( f* { ? .-m . J, l \\

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s,. .j.. -..y. e. f r r. l $=nB 9 h isQ' Ites 13 Certain Relationships and T b ' '!. g ;, Related Tranesctions Pages 10 through 12 of Registrant's Proxy Statement for April 22. 1987

• 4' Annual Meeting of Shareholders.

k;g.

• 2' Pages 26 and 27 of Registrant's 1986 Annual Report to shareholders.

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~ -,. r eg. e 4.5 y yk Art -. M$ ' em e t 4... i W part I ) %>$g,,. db Ite. i. sosine.s M d , g. p$ 3 GENERA 1, t W '" "Q (. Registrant traces its origins to 1839. y Marine and Tire Insurance Company, a predecessor of the MarineIn that year Wiscons } fg q Fagional Exchange Bank, was formed. 3-+1s Registrant was organized in '957 g M.P.' ; and in 1958 it acquired the Marine National Exchange Bank, now knoen 3 ) as Marine Bank. National Association, and three other banks. Registrant is located in southeastern Wisconsin, the sost n* industrialized and populous area of the state. h.YM Milwaukee, headquar-its industrial, commercial and financial center.ters of Registrant and its ~.4" ' t ,g[ Located 90 miles f north of Chicago on 1.ske Michigan. Milwaukee has a population of L W l? 625.000, making it the 17th largest city in the linited States. t

• g,y metropolitan area has a population of approximately 1.400,000 and Its g

t 8" approximately 40% of the state's population resides within a 50 mile p s,g.; radius of Milwaukee.

(+

4 from approstimately 82.0 billion to approximately $4.1 billion.In t ' 410 ,T;, %.g?' growth has resulted from the acquisition of banks and bank holding This companies and from business development in the commercial banking vnu y gt'$g Sur.h business development occurred primarily in Wisconsin, but fy,,r area. y -,77 there has also been substantial emphasis p\\ aced on developing conser-1/4 V J,hy;.g..i. cial banking business in surrounding states, primarily northern P Illinois. market areas served by Registrant's banks. Consumer banking is concentrated if M ig [ ~ "fl ,,.. ~ At September 30, 1986 Registrant ranked seventh in site based <~~% on assets among the approximately 450 banking organizations in the 1%p Chicago-Milwaukee metropolitan area and 17th among the M ( hlg, by hp .. a. . j g.L Bank Subsidiarite c.2p h (D* b vq 4:,N; N .b. Th6 following table sets forth information as of December 31 J L. y, 1986 with resps** to t.he essets, deposits, loans and shareholder I L equity of Registrant's 22 affiliate bankst + .-b kJ E. 8 g,,D 4 r d ca ' t,.%r.+ + p-. .!k.3Y ) g )y%}. k b i l 4$g* vs t - eg w' J,:.o w 3~. 4 ,48 4l"' "..*f.' 4. . pf i u ee m~a. Ate g. g._ M.s.ww I 4w w w w.m. m. 3. m,.., .y g., f 'l.; 3.jpAL):.. 7 t. y. g 'g;; q.c q m - ~ * - 't-

n m. t ,., + %g a> 4 G w

• ' g*?

r. M '1[ December 31 1986 Bank h Assets J Deyosite Loans Equity O (4 mounts in Thousands) Marine Bank. N.A. ,4..P 81.695.55a $1.144.309 81.041.275 595.043 M M-Marine Bank West Peoples Marane Bank of Green Bay 181.054 247.689 146.484 20.655 635.974 544.635 316.372 45.502 Marine Bank South. N.A. 275.563 240.048 153.189 21.183 M } ?. w Marine Bank Appleton. N.A.

s..

6 Community State Bank

• 242.090 198.108 115.106 21.020 214.431 195.826 92.341 16.170 J

~. Marine Bank Dane County 199.678 168.303 110.700 14.765 Aif Marine First National Bank 150,646 138.132 86.578 10.705 'p ' l .. T Citizens Marine National Bank 106.502 93.811 54.348 8.947 g >,?:^ W k" Marine Bank Southwest. N.A. g ~. Marine Bank Monroe 104.341 95.806 49.022 7.766 87.235 80.380 39.449 6.395 ~ Mb. West Bend Marine Bank 86.062 77.755 55.311 6.272 ~ b Marine Bank Oshkosh. N.A. 76.018 66.891 47.696 5.504 Marine Bank of Beaver Dam l g Marine National Bank of Neenah 74.542 68.315 40.705 4.833 "h O 4 d E zg Tidelity Marine Bank 69.857 57.424 37.457 4.853 c. 57.626 49.514 33.006 7.833 8 iip'.,. Marine Bank Seymour. N.A. 52.236 47.729 29.399

• 4.133 Marine Bank Campbellsport

)h 41.001 37.269 26.689 2.836 / Firstar Bank C11ntonv111e. N.A. as Marine Bank Larsen 31.362 28.025 15.879 2.682 4* gg 77 .A Marine Bank Freedon 19.839 17.925 8.895 1.699 2 16.503 15.163 9.444 1.117 K 3 Marine Bank Maquon QL 13.256 11.540 11.163 1.628 .1 g [h; q' A

• Acquisition consummated on February 20, 1987 A

j [4 l3 k Registrant receives dividends from its subsidiary banks, and all j subsidiary banks pay fees for centralized and/or corporate-wide d2

.VB

! N." services of Registrant related to the accounting, audit legal. W 4 P ' management, insurance, marketing, operations and credit review jT, M;,d M*, 1, functions of the subsidiaries. It is anticipated that the payment of J-l Ii[4 these fees, which in 1986 equaled approxiastely 3.01 of the subsidi-4.@ ary banks' gross revenues, vill continue in the future. Registrant W Y@pd believes that such fees are substantially less than would be charged

1. j$

4 by independent third party agencies offering the same services, E g,, lq.,- Marine Bank. Nat;onal Association also rents office space in the pig b.Q,Ql W: Marine Plaza. g.i'. D t'h hkA:[ Marine Bank. National Aanociation h ff; d'+ Marine Bank. Na tional Association (" Marine Bank. N. A.") the (%+, '? c. L Corporation's lead bank. ves established in 1839. gh It is a regional f.g commercial bank serving the depository and capital needs of both {(y3 large and small business enterprises in Wisconsin and elsewhere by granting various types of loans developing cash management services. y h,?% 4 p. M.: 4 wQ TdfW WR M . vW eV $.th ?.Np 3 16 nn M, '.!.w $.:. 5, & n ,v: p% g g \\t V % )5 &p M Tn a y

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'y. VE. "d ; C $iMy$ W 46 c ' JG 4 R pW.3.< 2 $, %.. B rd h. - [ @, O 'd j a- ,ll 3_ J K S W- !, g' ^. Og.* ] ' j.Q ' e i, ~ ~ ' ' ' ' ' ^

~~- r- ~ - t :'~ ' W ~'"~" p <; M ~ g t n a_ .nh L'.%p. sd. 4, -Q;# g, - y and maintaining demand and time deposit accounts. c N.A.'s services to individuals include checking accounts time and Marine Bank. I savings accounts, mortgage loans installment loans and credit cards. .r ' y .A

p Marine Bank. N.A. was the third largest bank in Wisconsin and s, -

the 240th largest bank in the United States, seasured by deposits at December 31.1986 (based on information taken from American Banker).rj yt. fh[' It has a loan production office located in Elahurst. i

.. h Illinois serving ir%

the Chicago and northern 1111oots area. bt i Mh? Marine Bank. N.A.'s International Banking Division provides %w i *M.

g..

'y import-export and project credits for Wisconsin-based businesses and E maintains correspondent relationships with approximately 60 foreign banks. Marine Bank. N.A. has as office in Hassau. Bahamas, princi- ~f h. pally to accept overseas deposits and to provide access to Eurodollar M markets and representative offices in Mexico City Marico and Tokyo. + Japan. Bank-Related Subsidiaries p 'n N)9 In addition to the 22 commercial banks. Registrant owns. I" t 3 directly or indirectly, the following bank-related subsidiaries N Plaza Building Management Corporation, which owns and operates the Marine Plass in which Registrant's principal office and lead bank are {d y located: Marine Bankcard Corporation, which provides the credit card 31 /- d g operations primarily for the Registrant's affiliate banks: Marinebanc Leasing Company Inc., which acts as agent for Registrant's affiliated "4, f g ' f}g banks in effecting leases of personal property: Marine Mortgage ) q.g Company Inc., which serves affiliated banks of Registrant in the . y g g / Mp procurement of secondary sortgage cousiteents for conventional residential mortgages Marine Bank Services Corporation, which { 1 74; p operates the data processing facilities for Registrant's affiliated ,34/C banks and for third parties: The Marine Trust Company, N.A., a

• )p.J.

V. ,4 national banking association which engages exclusively in providing .J

• O$

trust and related services at Wisconsin officess Marine Venture jv W a@* Capital. Inc., a ess11 business investment company which is licensed }?,p 33 by the U.S. Small Business Administration Marine Investment Services ,.N n 6 Corporation which offers discount brokerags services; and Marine DJ Financial Services Corporation which provides management services for Q!S /"' .y businesses that have foreign sales corporations. hqki' i M Recent Developments y ,j ..4 ,Y ' 1 On December 16, 1986 Registrant announced that it had entered ' r/W into an agreement to acquire Banco di Roma (Chicago), an Illinois bank and on February 20. 1987 it consummated the acquisition of j,, .j% Community State Bank of Bloomington, Bloosington. Minnesota. Q3 j y,JJ Addi-q(,$ tional information concerning these acquisitions is presented on page a% 25 of Registrant's 1986 Annual Report to Shareholders which is

w g

interpolated herein by reference. 7 ( ? g 4 . =mv,:. ,g. I'% m r, gj; g '. Op;y, ;; Q3Q gz_ J., C-6 ~ t A r, I ~.' w :s u. m&., '.-'.;&& c p yQ

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• "I

, f<,,, s 7, u. : $ 'q',.. )4. W M., h m~f. #'*N.En hr W % dh,r+SW Ce e v. -w w '* e Nt. M % %@f,Q.,4,

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Q:Q ~ '2 ,., 3].,, p ~ aC ;y%. Ay, * ** y' n -p .Q , [p.). y>' y-y a .s: ' + *s Y b t ~;, s. ,,.,,d .. e> 7 ~* # $. ?, .j m.g

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dy ) Employees 4 / At December 31, 1986 .[ 2.776 officers and non-officer espiRegistrant and its subsidiaries employed h, equivalent basis). oyees (computed on a full-time benefits, and Registrant considers its esployee relations to beEmployees a "Wp' %,y excellent. All of the employees of Registrant and its subsidiaries

1. M 5'T by Plass Buildirig Management Corporation and are engaged in theare ih l

4.l c ,y maintenance and operation of the Marine Plaza. fg;. (, Competition M,% Y,i ' [ h% Registrant faces many forms of competition in its market area. te? .A* The Registrant's two principal competitors, both of which are bank

• Q; holding cympanies based in Wisconsin, had total consolidated assets hb of $7.1 billion and $6.0 billion, respectively, at December

.r4 y 31, 1986 Q pp as coopered with $4.1 billion for Registrant. Other competitors include local community banks meney center banks. savings and loan % p; associations, credit unions. consumer finance companies, other e financial services institutions. brokers, noney market funds. re- /74 ta11ers, and other non-bank providers of credit and services. 4. -. g j Registrant anticipates that the United States banking industry will W4 2 experience continuing deregulation of banking activities, with the result that Te/h there vill be significantly increased competition, both t a-1 4 M geographically and as to product end rate, f rom both traditional and o"4 non-traditional providers of financial services. %.h / 4 ["I g::y3 'y BANKING AND OTHER REGULATIONS PJ_. $k p[.C,

• d W*h,-
• N Registrant is registered as a bank holding company under the federal Bank Holding Company Act of 1956, as amended (the " Holding 9T s

Company Act"). [y' 't.g' ' M The Holding Company Act gives the Board of Governors J of the Tederal Reserve System (the " Federal Reserve Board") broad powers of supervision, examination and enforcement with respect to

• kp "

s8' bank holding companies and their subsidiaries, and the authority to pd;?V' approve or deny their proposed activities (including specific propos-AC #, I c. g als for acquisitions of new subsidiaries). .v 4 l ~ ha' g Je j Under Visconsin law, Registrant is deemed to be engaged in the h$[ p ".g3 banking business and is subject to supervfeion by the Wisconsin % Y Commissioner of Banking. Registrant may be required to file reports w[y. e and any be subject to examination by the Wisconsin Commissioner of .m .7s Banking and the Minnesota Commissioner of Commerce. , R; 1 %:[7if 4 >, 8. Change in Control M [YL ' ^ The Tederal Deposit Insurance Act prohibits any person from -, di acquiring control of a bank holding company through the purchase of 1 'E -E [,( voting stock of such bank holding company unless such person gives (Ma. the Tederal Reserve Board 60 days prior vritten notice of the pro- {~ }Q v QW i .c ., mar * ) t o% 7-y (L:

• WA i

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• 4 I

w s. ~ w., w w, n &.a m.. g. + w. .n n d ~MA % mmm m. -.t.,

,y y, >1 +.* a. ww' > 3.. .MF ' ",D. _...(. $ .p*.>. -p L a ,l l ~ f It h.: .k.

s -

i ( i l 1 5 = s.. y posed acquisition. The Holding Company Act prohibits any company from becoming a bank holding company without prior approval of the l Federal Reserve Board.

[,

M company f a itself deemed to be a bank holding company.Any company whic 7 .R I <WC Og,p Regulation of Affiliate Banks i T federal and state law.The affiliate banks of Registrant are separately regulated by N- .P ate banks with respect These laws impose requirements on the affili-N ing, restrict to reserves assinst deposits, restrict branch-D banks and restrict the type of investments and other activities ofthe ty [ A the banks. W w In the United States, banks may be organfred under either =**#

s-A federal or stats law.

Ten of th& affiliated commercial banks. !'- r hh including Marine Bank. H. A., are organized under federal law, eleven J p,pp affiliated commercial banks are organised under Wisconsin state law. $?g" and one bank is organized under Minnesota law. Those with federal g+" u wge charters are supervised and examined tiy the Comptroller of the Y. 7 l' @Q.f Currency and may be examined by the Federal Reserve Board. Q"'d.. =a*** Those ?' M with Visconsin charters are supervised and examined by the Wisconsin , -j i Commissioner of Banking. Registrant's Minnesota chartered affiliate -Q bcnk is supervised and examined by the Minnesota Commissioner of .F' gm' Commerce. All of the banks may be examined by the Federal Deposit r l Insurance Corporation inasmuch as all of the banks are insured by the h. [r] A Federal Deposit Insurance Corporation. f?N'. .w ([ f.:..]. 5. Interstate and Branch Banking y.. uff 9 1 [$.; Registrant is presently limited in the geographic erpansion of ( its affiliates' basic deposit-taking banking functions by both % ((y 4

?

federal and state laws. A provision of the Holding Company Act T:: L permits the Corporation to acquire a bank in a st6te other than its

t. ' W

/ home state of Wisconsin only if such other state has enacted legisla-

7 g

tion specifically allowing such acquisitions. O' JJ - The neighboring states 7 of Illinois. Ohio. Michigan Minnesota, and Kentucky have enacted Cro legislation allowing such acquisitions on a reciprocal basis. f. Wisconsin enacted a law, effective Janusry 1, 1987. which allows

w+b l '

b ' iQ& requisitions. on a reciprocal basis, with the above mentioned states. 'N If Indiana. Missouri and Iowa pass reciprocal S.egislation, they too ^ ^ - would be eligible for acquisition by Registrant under Wisconsin law. M' An additional federal statute provides that a national bank may esta-37 se e 2, blish branches only to the extent petuitted by the laws of its home Y*K kk state. 5 s di 'i

• ' V "Q

Wisconsin places no limits on bank holding company expansien 6 within the state through acquisition of additional banks.

y

' p However.

• M -

branching by banks is limited to the county in which the bank's home office is located, or to locations outside the county but within 25 miles of the bank's home office. s In addition, branches cannot be g f, g., ? E opened within 1 1/2 miles of another bank's home of fice (or U4 mile [ 'bg [' p. WW m. ' '1h F -l% I, y ,. x _. - -.. m gt"If? R. M M M ,;n'"NWe _v _M @ 'Q W-r i. ~ ,~ m f me .~~ ~ . ;- Q :,,, , ( ~. y > - Qg,y ~ _ - >f.},. ~

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T- --___-__-_---.-_-m { Y h a ~ YNN ff,h of snother bank's branch). N' / Registrant's current bank ownership f allows it to place branches in areas of the state which cover approx. imately 70% of Wisconsin's popuistion. UI. ~ # further expansion by Registrant into the remaining areas of the statUnder curren [-Q M

h can be made through the formation or purt.hase of additional banks and

~ e ./W g i branching from these new locations. D- ,.C 'r* i'b M Minnesota places no limits on Registrant's expansion in Minne. J. N-sota through the acquisition of additional banks. ,((M $O4 ab limits branching by banks to two branches within 25 miles of a bank's Minnesota lav J a# hoes office. N' Notwithstanding the barriers to interstate expsesion of tradi- ? g :p'.9 tional deposit-taking activities, bank holding coopenies are author-i ized to establish subsidiaries on a nationwide basis to engage in a y Among the activittee which the Federal Reserve Board has dete 4 1,.%e .A .,34 to be closely related to banking are sortgage banking, finance +c Q. company operations and the processing and transmitting of financial or economic data. Banks themselves also operate on an interstate h4 j$ basis in 11mitad ways through the establishment in other states of f loan production offices which may make consercial loans without gAJ r i. geographic limitation but which may not accept deposits. <a ".M tion, banks and bauk holding companies say establish Edge Act subsid- ',ik In addi-1 aries which may perform certain bank services, including limited g ' :'on depositataking, as long as their services principally involve inter-i,[ 7) national transactions. . j.3 Monetary policy 7ff.p y

• 3 -

Monetary policies of governmental regulatory authorities, f @/* } primarily the Federal Reserve Board, have a significant effect on the .T.].y ' operating results of bank holding companiss and their subsidiary N< i banks. The Federal Reserve Board regulates the national supply of y]s . ;g

• bank credit.

affected the operating results of ecamercial banks in the past andFed % rf **'-' y gl [{

1. y3 are expected to concinue to do so in the future.

f6 The long range ii effect of changing Federal Reserve Board monetary policies, which j [.Q'. _ vill be dependent on a variety of facters, make it difficult to ,i, f' predict the total effect of such policies on earnings of banks and g% i bank holding companies. gK 44, ,/ 1' ,:,;9 ':;. .W Wr ) ?,%.A- \\ M. i V i g> 4 Y{!w yf i w.. <. ,1.~v$ ,4 w r L f_ . fw')m M l 1 Me .i, "j' " * ';4p~ ..,... w ,&L'28% S M A "#"^' 2M:.

{ T p ,r- ,4 <- e: ~' l i r $g a s v! r. t,- (g Jeen 2. Properties Y Bank N.A. are located in the Marine Plata atRegistrant's esecutive offices ,V g[. 9 Avenue, Milwaukse Wisconsin. j 111 East Visconsin Marine Plaza is a 22-story building p constructed in 1962 and owned by Plass building Managesent Corpora-

1. r Ny tion, a bank-related subsidiary of Registrant.

i "* ' M Management Corporation also owns the adjacent 11-lavel parkingPlaza Building M E pavilion, which is leased to an independent operator. 4 Marine Bank N.A. currently occupy approximately eight floors of theRegistrant and

b'.-'

....s. Marine Plaza, with the balance being leased to others. d7 $d,'.. Plass is subject to a sortgests the related sortgage note provides The Marine yf.9 ( for interest at the rate of 5 3/61 per annum and quarterly payments [t

• j.k. C' cf principal and interest to 1994 Q4 At December 31, 1986, the unpaid principal of this mortgage was 88.9 million.

w At December 31, 1986, the aggregate not book value of the Marine Plaza and the 75 banking premises owned by Registraat's affiliate f banks and used as banking offices was approximately 884.9 million f 1 f including equipment. -/~% buildinge used as banking offices. Registrant's affiliate banks lease four of the 3.] .jh r Rental paysente for leases of banking presises and operating equipment aggressted $6.0 million in ,s, - 1986. f-O Marine Bank Services Corporation, a vcolly owned subsidiary of k g. 41

';;,9 Registrant, is a party to a lease agreement, guaranteed by Regis-r,

' "'j ' trent, with Market Street Associates to lease space in a building owned by Market Street Associates. The lease is for a tera ending H

,h July 31, 1996, with two options of five additior.a1 years each, and h.n+

cevers approximately .W. 123,000 square feet of space at a base rate of 87.67 per square foot including least!.old improvements. '.* b(^.. y

.a 5 Occupancy p.., @

under the lease began in January 1982. ,& c.. 'a m.f \\, ,a 4*' ~

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41 n [, # ,'e.iY ~. ~.,. J 4.,. [i ~ tej ':ps M. - ? q. (%. p r, 5, ,.,da ^f. y h[~ ~ s'[if 2.: '. t.% N- . 0 k. = y g Y :f.. i^ !r r' p. '( [-' j.y w - to - Q4 ' _c e _y y w. m. m g.-4 . A L.,iAC," gg",""g._g;gx s i c. e a uwA _ w'._.~', s > ~ ^ " - ^ " ' ~ ^

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• f' v

l , my o g.. '4 ',' i'*p Part II ) j b. ;,. 7 Item 9 Disagreements on Accountina and Financial Disclosure 1 4.,;.M None. Q b-1 Part 111 Q Ites 10. Directors and Executive Officers of the Registrant 9, (a) Directors of Registrant d' f'gi A list of all Directors' names, ages, position, term of office , i *c and a description of any arrangements or contracts between them .f / ^# and the Registrant is reported on pages 3 through 5 and 9 Y through 12 of Registrant's 1987 Proxy Statement and is incorpo-m .p 4 $ 1-rated herein by reference. f

1. qA To the best of Registrant's knowledge there are no legal pro-h Q

f/ coedings which occurred during the past five years which are + r W- 'g asterial to the evaluation of any Director. ^ . 5, ,h"" (b) P 1 pk Executive Officers of the Registrant f. k@tjg All executive officers of Registrant, showing name, age, all +% $d g positions and offices of Registrant for the past five years and n$,7[3^ 4 year first elected as executive officer of Registrant, are d, 4 [.O listed on pages 12 and 13. There are no family relationships

t

'.e among them, all their terms of office expire at the next annual

• E meeting of directors following the annual meeting of sharehold-

%.3 p .,4 ers in April, 1987, and there are no arrangements or understand- ^u ings among any of them and any other person pursuant to which he g@Q +

1. l, $.

vas elected as an officer. To the best of Registrant's knovi-g,,7 p.3 edge, there are no legal proceedings which occurred during the -Ip.c 6 past five years which are material to the evaluation of any

7/d -

officer. get At v. bf To the best of Registrant's knowledge, during the year 1986 and a h[.7,# ~ k to date, there have been no disagreements at Registrant's p'h shareholder meetings not any substantial disagreements between T p Y Registrant's directors and/or officers that would warrant w J ~? consideration it, this filing. 'M i E ,7:? ; .w - pl. e. D h@ <m I ss &gg i j, s s.

1..

N 3. i{ 11 6 .6 y &:c. n ..~i!.%; _T 5 7 Y D $'n ',,', y Q,,, N p. ~ p,.liV @~ ~s ;; _;. y P,' g_;:a + r. qPrQ h g-t % R .m u.. icy Q, x,.. 7s -~.~,.a 4,y n.: % d M M,.,_,w o n m~,, " n i,@(, mp y .M wn%..if'Yih L.y. g@yy..e N M ~h s ww, MN n* SM + +

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. -/ c 7 T --- - - - L W~ s. I e ( g p'.g 3,,,,(*:, A ~. { . i'l 'N y is , a rd Officer of i . r" Name Registrant Age as of ' kM 2 N. Position Since(l) 12/31/86 L,0 4 g [P Coorse R. Slater Chairman of the Board. Chief Executive ~ $; 'h Officer and President 1976 62 'Tp William J. Morrissey Vice Chairman y ,3 1985 58 -? F Daniel J. Cannon (2) Forner President and Chief 0 erating 1981 42 u T 1 officer .v. i Alex J. Pollock Executive Vice President l 1986 43 Ronald C. Baldwin Senior Vice President - Corporate Group 1982 40 Frederick 1.. Cullen Senior Vice President - Vaukesha Group 1981 39 1 Jassa V. Eyster Senior Vice President - Bank Services l 1 Croup .g 1984 43 1.eila Fraser i 7 Senior Vice President - Marketing y Department 1982 44 Norman A. Jacobs Senior Vice President - Consumer and 1 Trust Group WM,4 e 1979 49 g , James C. LaVelle Senior Vice President - Minneapolis Group 1981 48 s Jon R. Schumacher Senior Vice President - Southern Wisconsin Croup 1977 49 Jon H. Stowe '(1 Senior Vice President - Financial 4 Institutions Group [-- 1984 42 A. Otto H. Wirth Senior Vice President - Northern Wisconsin 'dI 1 Croup 1975 51 i h'; John P. Hickey, Jr. Vice President - Personnsi and Product k e Management Departments 1986 39 1 4 p% 6 (!) b Principsi officers of Registrant are elected by the Board of Directors \\1 for a tern from the date of their election to the annual meeting of the Board of Directors following the next annual meeting of the sharehold-i ? 7 era of Registrant and until their successors are elected. E.. (2) hi Mr. Cannon resigned as Preefdent and Chief Operating Officer and as a Q. Director of Registrant on February 19, 1987 E i a l e4. khr .. 5%. n Aqq + a hk.k.p'g.e p. :,

a. f..d M

M bb ki n i -Y ja, *;a ., t.

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g

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> kg,. I t 4p. 4 R' s ;. w/e] %c vs y ~, w,%, g. m,y@a~vy,m ., m.ec m. ~ ,,1 iM. -,. . j! > j fI yj,~<g ym ..mp. '# """y';.z.~. '~~,.' 6.;,1 J:. k i d h'S k C s

a= ~ -->--~7-C l l }T ) ~ \\ Wy,/ . 4 3,j si George R. Stater - President and Chief Executive Officer of Registrant 1978 y to 1985. Chairman and Chief Executive Of ficer 1985 to February,1987 N' ged Chief Executive officer and President of Registrant Chairman. %/j 1987 to date. 1983 to 1985 and February, 4 .3 y$ a V1111am J. Morrissey - Chairman and Chief Executive Officer of Independ y (g Bank Group, Inc. 1979 to 1985; Vice Chairman of Registrant ence -t-c h,,y, Daniel J. Cannon - President of Marine Bank Services Corporation 1981 to 1985 to date.

.j/

1984; Vice President of Registrant 1981-1982, and Senior Vice President of Vg Registrant 1985 to Tebruary, 1987.1982 to 1985; President and Chief Operating Officer of Registrant ihd 4 ,,T; W ., Alex J. Pollock - Senior Vice President Continental Illinois National ) 'h[e.h ? Bane, 1982-1985, Senior Consultant, Nolan, Norton 6 Company, 1985-1986, Senior Vice President and Chief Financia1 0fficer of Regi q/ ant, Q" 198f.+1987 Preefdent C and Chief operating Officer of Marine Bank N.A. at.d Executive Vice President of Registrant February, 1987 to date. 4 @s Q' M3 Ronald C. Baldwin - Vice President Continental Illinois Venture Corporation ^:' x 1981 to 1982: Vice President of Registrant D, Registrant 1985 to dats. 1932 to 1985, Senior Vice President of , il j A ) 0, Frederick !.. Cullen - Vice President / Regional Banking of Registrant.

P, ppf 1981-1983, Vice President / Personnel of Registrant, 1983 to 1985. Senior Vice

) ) President of Registrant and Chairman of Marine Bank West 1985 to date. /d James W. Eyster - Senior Vice President-Systess, Norvest Information Servic- .g, K ' ;,dly

cr /

es, Minneapolis, Minnesota, 1981-1983: ~ Nj Planning, Marine Bank Services Corporation, Senior Vice President, Research and n 1983-1984; Vice President of Regis-g g. Marine Bank, N.A., July, 1984 to date; Senior Vice President of Registranttrant, President of 44M l < ir ' G3 .G " to date. , 1985 If.f's t %) Leila reaser - Chief Administrator to the Mayor of City of Milwaukee 1977-l bk' 1982: Vice President of Registrant 1982 to 1985: I trant 1985 to date and Senior Vice President of Marine Bank N.A.,1983 to dateSenior Vice Preside R W Norman A. Jacobs - Senior Vice President of Marine Bank, N. A., -? jW' fr. Y ?' l President of The Marine Trust Company, N.A., 1979-1982; 1980 to 1984 Executive Vice Presi-g: ',,.] dont of Marine Bank N.A., 1982 to date, and Senior Vice President of Registrant n%. k. 1980 to date. ) i N, James C. LaVelle - Executive Vice President of Marine Bank, N.A. 1980 to date; Senior Vice President of Registrant 2@,g i 1981 to date. Jon R. Schumacher - Senior Vice President of Marine Bank. N.A., 49 date 1982 to Senior Vice President of I.egistrant 1978 to date [ ,.s I yM g$'py&p i x.3 T#g I[ c-N. ,$. ;.k s ,n .w... d N - 13 ,s r a~ s,u,mae m,w,, nn d e n-A a-- w n n 4 e " w" 1 g . 2.M. L. A. - m.

,.m r- 'e -.. c -.~ - - I s,.- Di f4. t. gv a>' N. w rf - Jon H. Stowe - Senior Vice President, (,. The Boatmens National Bank of St. Louis.Co mnercial and International Banking. 1980-1982; Vice President of Registrant 1964 Senior Vice President of Marine Bank, N.A., 1985 to date. 1982 to date and Senior Vice Presiders of Registrant Otto R. Wirth - Executive vice President of Marine Bank N A { M_ Senior Vice President of Registrant 1978 to date. .., 1982 to datei John P. Hickey. Jr. - Vice President / Marketing 1981 to 1983 Principal M(l. Croup Ltd.: President of Registran*. 1986 to date.Vice President Private Banking. Marine Bank, II.A.1983 to 198 k / 4.mw (0 d p,.. N;. n1 9 g f > c' . %,, e... y,av t.$, 1%' : = k' iL fi,**: G,3. t ll pg tb k, (( #. n am tu,,., y I' {-.h A pp W yt ~ e 'y

i. I f.5)

Ee. s p +,, t g { y,p g, y }g,, g g. y W g e$ w,w4 ,3 gffQ.y. a g, 'X y ;.ff9 yp .,1 . + 4,..... m.p., _,g, g ;n e.. :. n. a y f.y-: . m. c,. m m. w w uz, v s A A 4 ..,d g. g.... .., u. g

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[f c-PART 17

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?'? Item 14 Exhibits. Finanetal Statement Schedules and Reports on Fore 8-K A., INDEX TO FINANCIAL, STATDENTS ANI) SCHED'11.ES /X 'e U (a) 1. Financial Statements J est v. .th 1 thereon of Price Waterhouse dated JanuaryThe consolidated financial statements, togeth { '*j 26, 1987, appearing on pages 20 V ) through 35 of the accompanying 1986 Annual Report to Shareholders are incorpo-s D s rated by reference in this Form 10-K Annual Report. 4" With the exception of the aforementioned information and the information incorporated in Items 1 through 'F 8 and Iten 13, the 1986 Annual Report to Shareholders is not to be deemed filed IA' Y W S/Op t 'ffy.' %s as a part of this report. /4% y

• I 1986 f.{

ANNUA 1,RIPORT _ RITERENCE 't, \\ Consolidated stecements of condition...... 20 'P A Consolidated statseents of income....... ,1 Consolidated statements of changes in 21 ( stockholders' equity,............ 22 j t Consolidated statements of changes in LT financisi position.............. k. 23 MY ) { ~ Notes to consolidated financial statements... N ^h 24 4-Parent Company statements of condition..... )$

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34 Parent Company statements of income...... 34 'n g 4 Parent Company statements of changes in g( ' i.sjg financial position.............. 35 '.jg Report of Independent Accountants....... 35 3.,

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g .$qa Schedules have been omitted because they are not applicable or . W. 1 the required information is shown in the financial statements or notes thereto. ie t j,'t h [ i{ 'u m-k!I h, r$3-Pate Independent Accountants' Consent to Incorporation by /##f 81 [ Mhg Reference in Terms 5-3 and 5-8. y }j %y Independent Accountants' Opinion on Tots !!-K. The ff 97 Marine Savings & Profit Sharing Plan. n j" " ... l. ~)h h < s.. ( g1 Q { G. x. J g.y; i, q v sa + g, y 4 .4 s 7y

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.u, . x r ' ,.s ~" - " il 4 ,e j,.%y.7 4 ~~ 1 y., 3. Exhibits T*N+ wl T,g,b = M (10)(17) Agreesent made Februar 19, 1987 between the Registrant 23 % +dlf* and Denial J. Cannon. y 7 r,, (13) Annual Report to Shareholders for the year ended December 31, 1986. 28 Ql g 95 p (22) Subsidiaries re: Registrant. E.' d 80 5 (24) Consent of Independent Accountants I w. 81 M 4 (28) '[ Tora 11-K Annual Report - The Marine Savings 6 Profit Sharing Plan. 82 fk s., ((' 3 " 7, (b) Reports on Fors 8 1 E E t. s D t A Forn 8-K Current Report dated January 14, 1997 dis-9 closed that the Registrant sold 222,223 shares of its g conson stock to Primary Capital Investors C.V. for g 810,000,035 in a private transaction. 4 ..g. A Forn 8-K Current Report dated March 4, 1987 disclosed that on February 19. 1987 Daniel J. Cannon resigned as - ~ President and Chief Operating Officer and as a director of Registrant and Marine Bank. N.A. George R. Slater, Chairman and Chief Executive Officer of Registrant was i i - elected to serve also as President and Chief Operating M, jf 'u Officer of Registrant. b Alex J. Pollock was elected to {'~' 4, the office of Executive Vice President of Registrant. ?. M', w j 2 7 '3 w 't,,_:.i v

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..j.,- _'t_ .. w r-a 'y-V q ', ( i. f, SIGNATURES K -b .h[,[ A F 'F hj f-Pursuant to the requirements of Section 13 or 15(d) of the Securities M y Exchange Act of 1934. the Registrant has duly caused this report to be signed ^ .j en its behalf by the undersigned thereunto duly authorised. fh J .,3[ i 6 THE MARINE CORPORATION r* i i y. c r ~ Y By: __/s/ Caorne R. Slater h I l k-George R. Slater 1 1 Chairman and [. Chief Executive Officer Y') Tobruary 19. 1987 'I.+,- P bx { c,j - ATTESTS __/s/ Frances C, sevth "Q f frances G. Smyth Secretary 7 9 f 1 Pursuant to requirements of the Seevrities Exchange Act of 1934. this 1 report has been signed below by the following persons on behalf of the Regie-G s trant and in the capacities and on the dates indicated. g,.. 1 { ' 3 '; ?.ht /s/ Ceorge R. Sister 67 4, Chairman and Chief February 19. 1987 r-S George R. Slater Executive Officer (Principal Execu-tive Officer) f5 .g %,[f 8

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/s/ John W. Allis } k John W. Allis Director February 19. 1987 'J 2 i ~r?[ d ' I?j ? /s/ Charles J. Aschauer. Jr. Director February 19. 1987 ~ em ff. r Charles J. Aschauer. Jr. V4, 1,,. 5% 4 y; ,,.... i f>, k

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/e/ Frederick E. Baer Director February 19, 1987 U?.. Tm$$'$$ Fr.derick E. saer Q,I h k'Tb(*I- /s/ William M. Berrv i ~ "'d W1111am H. Berry February 19, 1987 Director D({ .[; /s/ Robert C. Buchanan Director gg g",j Robert C. Buchanan Tebruary 19, 1987 'h [$ _/s/ Frank C. Decuire Director Fabruary 19, 1987 q.j,g Frank C. DeCuire ,kh 4 ,4 _ /s/ John H. t.adish Director February 19, 1987 John H. Ladish . = = f su' ~~ N ~ /s/ Stephen H. Marcus ( Stephen H. Marcus Director February 19, 1987 d .f' .y "t e4 'F # /e/ William J. Morrissey Director February 19, 1987 -L William J. Morrissey 2 f f5 .. - Z f~ ,U /s/ Talat M. Othman Director February 19. 1987 n. Talat M. Othman g,;F Q ~ 4

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/s/ Morris W. Reid Horris W. Reid February 19, 1987 vff' Director l A L /s/ Fredertek P. Stratton. Jr. Director Tebruary 19, 1987 N. j s f rederick P. Stratton Jr. 1 Y.I ~ i s k. T, ( 9 O O n pip $iR nn s'g .@y @K y _M ;? $ @Q E Aass g gk si G R.C @df,P., TN., g M, i M. O 9 P d.4.... m. t. y.m.. g,. s yl.,l 'h_, D l S

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t. s #." j g) m ro OS THE MARINE CORPORATION REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER

31. 1986

_INDEI To EIRIBITS ?., (3) (1) t '~ Amended and Restated Articles of Incorporation of W Registrant filed with the Registrant's Form 10-Q for the quarter ended June 30, 1986 by reference. and incorporated herein (3) (2) By-Laws of Registrant as amended to date filed with A Registrant's Registration Statement on Form S-8 (File No. e 2-90887) and incorporated herein by reference. %.w' j' (4) No exhibits are being filed with respect to long-ters debt p 1,17*- of Registrant because the total enount of debt outstanding [ thereunder does not exceed 10 percent of the total assete of Registrant and its subsidiaries on a consolidated basia, w Registrant agrees to furnish copies of all such agreements 3 to the Commission epon request. $,@( (10) (1) dM First Amendment of !. ease, dated January 1.1984. between j g' Registrant and C. Be11esan Brewing Company Inc., sucesesor k in interset to Pabst Brewing Company. filed with Regie-trant's Fors 10-Q for the quarter ended June 30, 1984 and jd u incorporated herein by reference. u h.k (10) (2)

1. Lye Aasended and Restated Management Incentive plan adopted g6' u

Woeember 21, 1974 and amended through February 19, 1981 gh filed with Registrant's 1980 Form 10-K and incorporated gc.4 emy herein by reference. g-4 (10) (3) Agressent made March 1, 1976 between Marine National k,"' Exchange Bank and George R. Slater, filed as Exhibit ya i 6(5)(h) to Registrant's Registration Statement on Foru S-14 (File 50. 2-66142) and incorporated herein by reference. g ,1 S' g (10) (4) Agreement made March 1, 1979. between Registrant and Coorse Fj _3 s R. Slater filed se Exhibit 6(5) (1) to Registrant's Regis. tration Statement on Form Sale (File Ec. 2-66142) and .j - j incorporated herein by reference. s I @.~ (10) (5) 1977 Stock option Plan, filed as Exhibit 1 (c) to 's 9 t'df/f Registrant's Registration Statement on Form S-8 (File No. 4f.. pp 2-51072) and incorporated herein by reference. "Y (10) (6) bk 1981 Stock Option Plan, filed with Registrant's Registre-k tion Statement on Form S-8 (File No. 33-4523) and incorporated i '-/ ' og-l herein by reference. i f m .,0 1

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e 4 o L ' $$ b, ~ ~ .y t;@) t (10) (7) .? Dividend Reinvestment and Stock option Flan and Poet p.,. :; Effective Amendment No. 3 to Registrent's Registration pd ' M Statement filed as Foru S-16 on Form S-3 (File No. J. ' 4(- and incorporated herein by reference, 2-65747) C,6 (10) (8) Subsidiary Bank Director Stock Purchase Flan and Poet 7,f Effective Amendment No. 2 to Registrant's Registration s p Statement filed as Foru S-8 (File No. 2 72129) and incorporated herein by reference. (10) (9) Contingent Employment Agreement made February 18, 1982 between Registrant and George R. Slater filed with Regis- " +. ,9 trent's 1981 Form 10-K ud incorporated herein by reference, 7h (10) (10) i -- [Tp, Torm of Contingent Employment Agreement made February 18 M-1982 between Registrant and certain principal officers of Registrant. filed with Registrant's 1981 Foru 10-K and (JM incorporated herein by reference. x (10) (11) Severance Agreement made February 18, 1982 between ,p y,7 Registrant and George R. Slater, filed with Registrant's >: r'% 1981 Form 10-K and incorporated herein by reference. 1 yV ~ (10) (12) Form of Severance Agreement made February 18, 1982 between Registrant and certain Principal Officers of Registrant. 3 filed with Registrant's 1981 Fors 10-K and incorporated y herein by reference. W hf%-- (10) (13) Registrant Savinge & Profit Sharing Plan filed with Fors ~ %4 S-8 (File No. 2-90887) and incorporated herein by reference. 70 1 3 3 .r d '? (10) (14) h. 3.l g Securities Purchase Agreement. dated October 17, 1983 ,. h between Registrant and Primary Capital Investors C.V. filed bg M,% with Registrant's Current Report on Fors 8-K dated October S$.

17. 1986 and incorporated herein by reference.

jf ((17 N ry j (10) (15) Standstill Agreeeent. dated October 17, 1983 between @pf~ Registrant and Primary Capital Investors C.V. filed with u kasistrant's Current Report on Fors 8-K dated Detober 17 dy g3 1986 and incorporated herein by reference. I, vy i 00) (16) Form of Employment Agreement made June 19. 1984 between NL, N Independence and cascain principal officers of Indepen-

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k4fd dance, filed with Registrant's Registration Statement on e, > hyQ Form S-14 (File No. 2-94126) and incorporated herein by 'Qg reference. kd $;>![ ~ (1U) (17) Agressent made February 19, 1987 between Registrant and y .gl;K Daniel J. Cannon. .5 'ikg Ada hW <m. fnnf 4,s,d y,3 A .et

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